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Smart bond

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A smart bond is a specific type of an automated bond contract that uses the capabilities of blockchain databases that can operate as cryptographically-secure yet open and transparent general ledgers.[1] It is one of a class of financial instruments known as a smart contract, "a computerized transaction protocol that executes the terms of a contract."[2]

A key benefit of the smart bond technology is the elimination of the "middle or back office", as well as the bond registry, substantially reducing the cost of servicing the bonds. Additional benefits include the potential for instantaneous settlement, rather than the days it required in 2015, as well as lower operational risk.[1]

But high costs are also present in the bitcoin blockchain and protocol that was being used in 2015: "Transactions can take an hour or more to verify and it requires large amounts of electricity via miners who verify transactions."[1]

History[edit]

In 2011, Daniel Bruno, CMT[3] designed the Solidus Bond as an instrument that brings bond convexity to zero since it is redeemed by algorithm and can not default. It also eliminates brokerages that traditionally earn a percentage of the value of bonds sold. As early as 2014, banking executives were speaking publicly about the ability of blockchain technology to trigger significant "simplification of banking processes and cost structure."[4]

As of 2015, UBS was experimenting with smart bonds that use the bitcoin blockchain[5] in which "risk free interest rates and payment streams [could be] fully automated, creating a self-paying instrument."[6] The Huffington Post reports than an announcement of the UBS smartbond service is expected in 2016.[7]

References[edit]

  1. 1.0 1.1 1.2 Jenn, Sarah (2015-06-15). "UBS Bank to Launch Cryptosecurites Also?". NewsBTC. Retrieved 2016-05-27.
  2. Tapscott, Don; Tapscott, Alex (May 2016). The Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World. pp. 72, 83, 101, 127. ISBN 978-0670069972. Search this book on Amazon.com Logo.png
  3. "Daniel Bruno Approved Academic Papers". SSRN. 19 January 2019. Retrieved 19 January 2019.
  4. Irrera, Anna (2014-10-27). "UBS CIO: Blockchain Technology Can Massively Simplify Banking". Wall Street Journal. Retrieved 2016-05-27.
  5. Ross, Rory (2015-09-12). "Smart Money: Blockchains Are the Future of the Internet". Newsweek. Retrieved 2016-05-27.
  6. Wigan, David (2015-06-11). "Bitcoin technology will disrupt derivatives, says banker". IFR Asia. Retrieved 2016-05-27.
  7. Seaman, David (2016-08-10). "Ethereum: Here Come The Big Banks". Huffington Post. Retrieved 2016-08-11.

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