National Settlement Depository (NSD) has operated emission and initial placement of the first blockchain-based commercial bonds on the Russian market.
NSD has joined forces with two majors to bring to life a decentralized ledger solution that will allow trading, placement and record keeping for bonds to be simple and transparent. Raiffeisenbank Russia became a blockchain bond issue pioneer, starting the initial placement and subsequently purchasing $10M worth of papers of MegaFon, one of the largest mobile network operators in CIS.
Commercial bonds in question are privately traded papers offered via simplified procedure, and characterized by relatively low costs for issuer. Their circulation on the secondary market is limited to two-sided transactions and does not imply stock trading. The securities are due to be redeemed on December 22, 2017.
«NSD was among the first to experiment with blockchain in Russia, one of the reasons is enormous interest from our partners and clients. The ultimate goal NSD is to build blockchain infrastructure for any innovative financial product to operate on. Once the infrastructure is created, technology holds potential to deliver a large variety of financial products and services operated by smart contracts», declares Chairman of NSD’s Executive Board Eddie Astanin.
The solution designed by NSD utilizes Hyperledger Fabric 1.0, an open source blockchain framework and one of the Hyperledger projects hosted by The Linux Foundation. All parties involved have access to the decentralized ledger and ability to monitor transactions and operations. Member sends a transaction to distributed ledger through smart contract, where it becomes a new operation in the commercial bond’s life-cycle. The operation is then verified and included into the ledger after undergoing a distributed consensus procedure. Set of smart contracts includes ones to facilitate issuance, secondary trading and redemption and available in open-source. It covers management of ownership on papers and connects to offchain payment system through custom interface.
This private distributed ledger has been built by unique team of distributed ledger engineers from NSD and Altoros on Hyperledger Fabric which in turn has been developed by the team all over the world and lead by IBM. Nodes of ledger are hosted by enterprise participants of this business case. Sources are available on GitHub: https://github.com/olegabu/nsd-commercial-paper-client and https://github.com/olegabu/nsd-commercial-paper-common.
"We congratulate NSD on their success,” said Brian Behlendorf, Executive Director, Hyperledger. “A pilot project put into production is yet another important milestone for the Hyperledger community. What they have accomplished has the potential to become a basis for worldwide collaboration, and is one more sign that our open source technology is ready for enterprise deployment."
«In the turbulent times when everyone waits to see what results corporate blockchain can achieve, it’s important to have a successful example with real money put into ledger. We spent the last three months working together with Raiffeisenbank Russia, MegaFon and Altoros as a team in 24/7 mode. It looks like a start of something big and new by running these smart contracts and creating new level of trust through distributed nature of this platform», comments Alexander Yakovlev, Head of decentralized solutions direction at NSD.
Hyperledger Fabric 1.0 was released on July 11, 2017. Moscow Exchange Group joined Hyperledger in June 2016
Commercial bonds are a financial OTC instrument implemented as part of the “bondization” of the Russian economy. The first issue and program for commercial bonds based on traditional centralized technologies were registered by NSD in summer 2016. The instrument has numerous advantages, including the unsecured character of borrowing, an absence of requirements for a borrower’s financial state and terms, and no limitations on the borrowing volume and term. Commercial bonds are placed through a private subscription.
Digitalized asset is the paperless form of a financial market instrument that allows it to be kept in an electronic format. In this project, an asset tokenization mechanism is used; this creates a special cryptographically protected token for each bond that represents a digital version of a security’s proof of ownership. Thus, rights to securities are accounted for using blockchain technology.
Cryptographic Protection provides confidentiality, completeness, and authenticity of information using cryptographic means that have a sufficient level of protection from cyberattacks and other risks.