Santander, one of the world’s biggest bank, has completed the entire process of issuing a tokenized bond, paying the interest/dividend rate for the period, and redeeming or closing the bond, all on the ethereum public blockchain.
In a world first of its kind, the journey of this bond can now be seen on the blockchain, starting with its issuance of $20 million worth for 100 NTN tokens each worth at $200,000 while attracting a 1.98% yearly interest rate, translating to $99,000 per quarter.
This was in September when Santander acknowledged the receipt of $20 million in fiat by creating a SUSD token, S obviously standing for Santander combined with USD.
In return for it, the 100 tokenized NTN bonds were given, with John Whelan, head of digital investment banking at Santander, announcing:
“We just performed an early redemption of our blockchain-based bond that we issued on September 10th, 2019. This unequivocally proves that a debt security can be managed through its full lifecycle on a blockchain (public in this case).”
So what happened? Well let’s start at the beginning of the story as shown on ethereum’s public blockchain:
So 91 days ago the 0xa5 smart contract (pictured featured image) created the 20 million SUSD and gave it to Santander:issuer, Santander from now on.
They then burn these tokens after giving 100 NTN to Santander: investor. So thus we have proof $20 million was received and this is acknowledged by Santander.
Now, three months on, the $20 million is revived and the 1.98% interest of $99,000 is added, with Santander so giving that combined amount to the investor.
Much might look the same above, but the investor here is acknowledging receipt of the money by burning the dollar tokens.
He or she has not burned the NTN tokens. That’s presumably a subtle way of saying he has possession of them, and he can do with them what he wants, but where the contractual obligation is concerned this is over because he has burned the tokens.
The other interesting part is the 0xa5, the smart contract, appears to be behaving on its own.
That is, we have the Santander account, the investor’s account, and the 0xa5 smart contract bot who is keeping accounts.
So that 0xa5 is basically the bank – in a smart contract code automated form – mediating or facilitating the contractual relation between the fund raiser and the investor, who keep on the blockchain automated accounts and proof of obligations, with the “burning” here being like signing.
So the investor or the bank, presumably at the same time as the fiat is sent, acknowledge receipt by sending the fiat tokens to the 0x000 address.
Just as with a signature there can be fraud but at a higher barrier because you need the actual private key rather than the talent to copy a signature or fully fake one to temporarily fool.
So you can’t fake here unless the person is hacked, in which case presumably they would quickly become alert to it. While with a signature, you don’t necessarily need interaction with the individual. Just paper documents or even in their absence you can just imagine a signature and try to pass it as theirs.
Because fiat has to pass hands, and in this case quite a bit of it, they have ID requirements, so hacking here wouldn’t necessarily come into play because presumably there are ID steps to transfer the ownership.
But if this was for USDT or eth or something more native, you basically have an automated, very instant, quite global, and an utterly cheap way of issuing bonds or any other financial instrument.