There are a number of advantages associated with tokenized government bonds, but adoption may take some time.
A handful of state-sponsored financial institutions are exploring tokenization use cases to revolutionize traditional financial systems. For example, the Volcano Bitcoin Bonds project in El Salvador has been running for over a year and aims to raise $1 billion from investors in tokenized bonds to build a Bitcoin city.

The Central Bank of Russia also expressed interest in off-chain tokenized assets. In addition, the Israeli Ministry of Finance, together with the Tel Aviv Stock Exchange (TASE), recently announced that it is testing a blockchain-powered platform for trading digital bonds.

Cointelegraph Research’s 2021 Securities Token Report found that most securities will be tokenized by 2030. While notable, the potential behind tokenized government bonds seems huge because these assets can free up liquidity in traditional financial systems while speeding up clearing time.

Brian Estes, CEO of Off the Chain Capital and member of the Digital Chamber of Commerce, told Cointelegraph that converting bonds to tokens allows for faster clearing, which in turn leads to lower costs.

“The ‘capital at risk’ period has been shortened. This capital can then be released and put into higher productive use.” Factors like this have become particularly important as inflation levels rise, influencing liquidity levels in traditional financial systems around the world.

Making this point, Yael Tamar, CEO and co-founder of SolidBlock, told Cointelegraph that tokenization increases liquidity by converting the economic value of a real-world asset into exchangeable tokens. cash when liquidity is needed.

“As tokens communicate with financial platforms via blockchain infrastructure, it becomes easier and cheaper to assemble them into structured products. As a result, the entire system becomes more efficient.

To put this in perspective, Orly Greenfield, TASE’s vice president and head of clearing, told Cointelegraph that TASE is conducting a proof-of-concept with the Israeli Ministry of Finance to demonstrate a nuclear deal or spot asset swap.

To prove this, Grinfeld explained that TASE uses the VMware Blockchain of the Ethereum network as the basis for its experimental digital exchange platform. He added that TASE will use a one-to-one payment token backed by the Israeli shekel to transact over the blockchain network.

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In addition, he stated that the Israeli Ministry of Finance will issue a series of real Israeli government bonds. Next, a live test will be conducted in the first quarter of 2023 to prove the atomic placements of the token bond. greenfield said:

During the TASE test with the Israeli Ministry of Finance, everything will look real. The auction will be conducted through Bloomberg’s Bond Auction system, and the payment token will be used to process transactions on the VMware Blockchain of the Ethereum network.”
If testing goes ahead as planned, Grinfeld expects the settlement time of digital bond trades to occur on the day the trades are made. “Transactions made on day T (trading day) will result in T day instead of T+2 (transaction date plus two days), which will eliminate the need for collateral,” he said. So such a concept would demonstrate the added real-world value that blockchain technology can bring to traditional financial systems.

Tamar also explained that the process of listing bonds and offering them to corporations or the public is a very complex process involving many intermediaries.

“First, loan instruments must be created by a financial institution working with the borrower (in this case, the government) to process the loan, receive the money, transfer it to the borrower, and pay the lender interest. The bond processing company is responsible for accounting and reporting in addition to Risk Management.

Tamar, repeating Grinfeld, stated that the swap period can take days, noting that the bonds are organized into large portfolios and then moved between various banks and institutions as part of the agreement between them.

Given these complexities, Tamar believes it makes sense to issue government tokens via a blockchain platform. In fact, the findings of a study by crypto asset management platform Finoa and Cashlink show that tokenized assets such as government bonds can deliver between 35% and 65% cost savings across the entire financial system value chain.

Brian Boring, founder and CEO of the Digital Chamber of Commerce, told Cointelegraph in a broader perspective that tokenized bonds are

Source: CoinTelegraph