Spanish banking giant Santander today announced the launch of a $20 million blockchain bond that runs on the public Ethereum blockchain. Santander said it’s the first banking project that’s run entirely on a public blockchain.
Bonds are essentially IOUs that pay interest. Santander used an ERC-20 token on Ethereum to represent the $20 million bond, which was later settled with another set of tokens held in a separate account.
During the bond transaction, Santander Securities Services holds the cryptographic keys and puts all the tokens on the blockchain. Then the buyer, one of Santander's companies, bought the bond at the token’s market price and the funds were transferred over the blockchain. The bond matures in one year, and pays out 1.98 percent returns each quarter. It wasn’t clear how the returns would be paid out, either in fiat or crypto.
This is significant because the bond was issued on the public Ethereum blockchain, rather than a permissioned version of it that exists separately.
Typically, when large businesses use blockchain technology, they focus on permissioned chains—which have no impact on the current Ethereum public chain. For example, The World Bank, which claimed to have issued the first-ever blockchain bond, issued it on a private version of Ethereum.
Ethereum bulls prefer to see projects use the mainnet because it increases use of the network, driving up adoption and, they hope, driving up price.
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But because Santander issued the bond to itself, it never had much to lose. Right now, the announcement is a tech demo at best, a PR stunt at worst. Nevertheless, it is proof that banks are taking blockchain seriously and looking to make the most out of the technology, and starting to trust public blockchains like Ethereum.
“Our clients are increasingly demanding the best thinking and technology in how we serve them in their capital-raising efforts. This blockchain-issued bond puts Santander at the forefront of capital markets innovation and demonstrates to clients that we are the best partner to support them on their digital journey.” said José María Linares, global head of Santander Corporate & Investment Banking in a press release.
Satander started work on the project at its blockchain lab back in 2016. Since then, it’s received support from Niavura, a London fintech startup, and Allen and Overy, a global law firm headquartered in London.