Technology
Banks Collaborate To Break Ground With Digital Bond Deal – The Implications

Repurchase agreements are a major part of how the world's debt markets work and are deeply embedded in the very nature of central banking and financial stability. How this market could be influenced by digital assets – and the blockchain – may not be front-page news, but is important, and hopefully could benefit end clients.
In November last year, Swiss bank UBS, Tokyo-based SBI Digital
Assets Holdings and Singapore’s DBS launched
what they said was the world’s first live repurchase transaction,
aka repo, with a natively-issued digital bond on a public
blockchain. The transaction is an example of how digital ledger
tech, or blockchain, is changing the “plumbing” of finance.
The repo was carried out as part of the Project Guardian
programme of the Monetary Authority of Singapore. It involved a
repo to borrow tokenized Japanese Yen against a JPY-denominated
natively-issued digital bond, with the borrowed tokenized JPY
used to finance the purchase of the same bond. The subsequent
digital bond redemption and payment of principal and interest at
maturity was executed on-chain as well.
WealthBriefingAsia spoke to Luis Vasquez Cao, chief
executive officer of SBI Digital Asset Holdings – which also has
offices in Singapore –about the work this firm has been
doing.
Cao said that SBI focuses on building institutional-grade
financial infrastructure and services to meet the needs of
institutional investors, establishing a robust ecosystem and
distribution network, and working with regulators to
build industry standards and best practices.
“While there is currently significant demand for tokenized
real-world assets, the barrier to adoption remains
until institutional-grade infrastructure is available as
financial institutions require regulated, secure and
fully-compliant ecosystems,” Cao said. “Blockchain technology
applied to traditional finance and banking systems, will
revolutionise the industry and prompt the transformation of
conventional operations to digital formats. This will streamline
processes, simplify operational layers and bring benefits of
greater security, traceability, zero errors, faster settlement,
and cost savings.”
This publication asked what were the benefits for wealth
managers and private banks?
“Lower transaction costs: Tokenization reduces the need for
specialist brokers and middlemen, which can lower transaction
costs for buyers and sellers,” he replied. Another benefit is
increased liquidity, Cao continued. “Tokenization allows for
fractional ownership of an asset, which means investors can
purchase a portion of an asset rather than buying it outright.
This can increase the value of the asset, by making it easier to
buy and sell.”
Another quality is more transparency, he said. “Blockchain
technology provides an immutable record of ownership and
transactions, which can increase transparency and reduce the
potential for fraud or disputes. Digital certificates of
provenance can be issued for non-bankable assets.”
A survey by SBI, conducted among institutions interested in
digital assets, showed that almost half of those taking part in
this field said the reduction in the number of intermediaries –
the “middlemen” – was the main benefit. Other benefits are
quicker settlement, cost efficiency and transparency.
Moving forward with this technology will take time, Cao said. “A
fully integrated financial system through digital transformation
will not happen overnight. We will continue to work closely with
the public sector to establish risk controls and legislation to
safeguard the interests of all stakeholders,” he said.
This news service asked Cao how such businesses contend with
ever-changing regulations.
“The global regulatory landscape evolved significantly in 2023.
The UK, EU and US announced new laws to regulate the digital
market, while Hong Kong and Singapore reinforced existing
frameworks to enhance customer and investor protection,” Cao
replied. “Although the recent backlash against the SEC’s approach
to regulating digital assets might give the industry the
impression that regimes are diverging, ultimately, regulators are
pulling in similar directions to foster a secure and transparent
digital asset landscape globally.”
Repo needs more attention
“The repo market has historically been underserved by technology
– leading to increased costs and delayed settlement times.
Traditional repo transactions involve a convoluted process, with
orders passing through front and back offices, leading to
settlement times of up to two days. This inefficiency not only
hampers liquidity but also freezes assets for a significant
period, hindering market fluidity,” he said.
"Blockchain technology, with its transparent nature, has the
power to address these longstanding challenges. Despite the
advent of clearing houses to mitigate risk, trust remains a
crucial factor in repo transactions. Institutional players, with
their established credibility and adherence to regulatory
standards, can instil confidence in market participants,
fostering a more resilient and trustworthy repo market," he
concluded.