The UK treasury is exploring the idea of issuing blockchain gilts (bonds). However, there is opposition from the DMO – here’s why.
Tokenization is picking up steam.
BlackRock is already tokenizing United States treasuries on Ethereum. However, it is not the only big tradfi firm.
Others, including Franklin Templeton, are giving BlackRock a run for their money.
Over $2.2 billion worth of United States treasuries and bonds have been tokenized, living and breathing on multiple chains, including Ethereum and Polygon.
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United Kingdom Considering Blockchain Bonds
Now, the United Kingdom Treasury is exploring the use of the blockchain in issuing bonds, proposing the idea of introducing the “digital gilts.”
As positive as it may be, considering it validates the blockchain and confirms that the tech can be integral in finance, the Debt Management Office (DMO) is resisting the initiative.
The DMO is responsible for managing the United Kingdom’s debt.
Still, supporters think the digital gilts will be beneficial in multiple ways.
In their view, because of the blockchain, it will improve efficiency, reduce costs, and, most importantly, enhance transparency in the financial markets.
If they tap into Ethereum’s security, for instance, they will benefit from a trustless environment, eliminating expensive intermediaries. Subsequently, the issuance of these blockchain bonds will be streamlined, enabling seamless trading that will significantly reduce costs.
Those who trade, now that public ledgers are, as the name suggests, public, will be known. For this reason, it is easy for the government to identify the ultimate beneficial owners of these bonds, regardless of their locations.
DMO Has Its Doubts On Digital Gilts
Although the benefits are clear, doubters think the blockchain is in its early stages, and the absence of interoperability between different networks can present challenges. Currently, developers are working to build interoperable networks with Polkadot and Cosmos, for instance, at the forefront of this push.
Besides, there are concerns that tradfi market participants are not ready to deal with digital bonds.
The DMO acknowledges that though it is open to innovation and wants to drive the building of an efficient bond market in the United Kingdom, the launch of digital gilts could negatively impact the currently functional gilt market.
HSBC Launches Digital Bonds In Hong Kong
While discussions are ongoing, the United Kingdom, even if they process with the digital gilts, won’t be the first to issue a blockchain bond.
In late September, the HSBC issued a $128 million digital note via the blockchain.
Early this year, the bank also issued a $756 million digital bond via the Orion blockchain per the dictates of the Hong Kong laws.
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