The Israeli government has issued a report detailing the outcomes of its government bond tokenization pilot, emphasizing the advantages of blockchain technology in bond issuance, including accessibility, transparency, and heightened security.
In May 2023, the Israeli Ministry of Finance initiated a proof-of-concept (PoC) named Project Eden, through which it issued a simulated government bond on the blockchain. Collaborating with the Tel Aviv Stock Exchange (TASE), prominent global entities like JP Morgan and BNP Paribas, alongside local financial institutions, participated in this endeavor.
According to the recently published report, the integration of blockchain infrastructure, smart contracts, and tokenization has demonstrated the potential to enhance operational efficiency, mitigate risks, and introduce transparency into the processes of issuance, settlement, and clearing of financial assets.
The tokenized bonds were launched on VMware, a blockchain platform specialized in multi-party workflows compatible with the Ethereum Virtual Machine. Asset custody was managed through FireBlocks, employing multi-party computation for asset control.
During the pilot, the bonds were tokenized into security tokens, specifically ERC1155 tokens, enabling seamless atomic transfers upon receipt of payment. Investors were required to use a customized payment stablecoin pegged to the Israeli shekel for bond acquisition.
At the core of the ecosystem was the TASE Bond Management Contract, facilitating various bond-related processes such as submission, approval, issuance, and settlement. It also facilitated the transfer of tokenized bonds and payment tokens among counterparties.
The utilization of blockchain technology ensured that all transactions were recorded transparently, providing real-time visibility into market participants. The decentralized application utilized for issuing the tokenized bond simplified onboarding, thus enhancing accessibility.
The reported benefits encompassed risk reduction, heightened security, and operational efficiency. Notably, atomic settlements, wherein the transfer of security tokens and payment occurred simultaneously and irreversibly, were highlighted as a significant advantage.
The Finance Ministry has committed to expanding the project’s scope in subsequent pilots, intending to include other financial instruments and markets. Future iterations will explore the tokenization of diverse asset classes, expansion to public networks, and achieving interoperability.
In addition to the blockchain bond tokenization initiative, Israel has delved into exploring central bank digital currency (CBDC) concepts. A recent publication outlined various design and implementation possibilities, notably proposing an interest-bearing digital shekel.