Daiwa Securities launches digital bond utilizing Rakuten’s digital currency for interest payments
Capital markets firm Daiwa Securities is issuing 1 billion yen (US$6.6 million) worth of digital bonds based on blockchain technology.
The new bond will be issued through MUFG’s tokenization platform, Progmat, and is expected to be open to a broader investor base. Previous digital bonds have typically only been available to institutional investors, but Daiwa Securities’ latest offering will focus on individual investors.
The main feature of digital bond issuance is the interest payment on the bond. Daiwa Securities said interest will be paid through Rakuten’s Edy, a prepaid electronic currency that can be used at more than 400,000 merchants in Japan.
Although the interest payment strategy appears forward-looking, critics have expressed opposition to Rakuten Edy’s non-transferability of value. A quick search on the platform reveals that stored value is non-refundable and in case of loss or theft, holders will not be able to access their stored funds.
However, there is speculation that Daiwa Securities may turn to stablecoins and utility tokens to pay interest outside of fiat. This speculation stems from Progmat’s new solution for stablecoin issuers and the significant strength the project will gain after mid-2023.
In the recent $6.6 million bond issuance, Daiwa Securities joined Rakuten Securities as a co-underwriter and Mizuho joined as a bond manager. Japanese financial giant
MUFG was billed to operate as the receivables ledger manager due to its extensive experience with Progmat.
Daiwa Securities’ latest attempt at digital bonds was intended to distance itself significantly from rival Nomura. By the end of 2023, the company had acquired 22.6 billion yen (USD 152 million) worth of security tokens using blockchain for transparency and interoperability.
Previous attempts to embrace digitalization have seen Daiwa Securities explore digital corporate bonds using BTC’s Lightning Network and digital assets for DvP payment services. Across digital drives, the company’s value has risen more than 13% since the beginning of the year.
The promise of digital bonds
Digital bonds are becoming increasingly prominent as traditional financial institutions use blockchain to issue bonds. While bank executives point to the cost-saving benefits associated with digital bonds, others are pushing for instant payments as a key reason for the switch.
“When you issue something, the settlement is completed within minutes or seconds of issuance,” David Newns, CEO of SIX Digital Exchange, said in October 2023. “From a financial perspective, you see yourself holding those bonds immediately.”
However, some are proceeding cautiously considering the technical, security, and legal risks associated with digital bonds. Proponents of the technology have advocated a dual approach to digital bonds, using similar traditional bonds in the event of a black swan event.
Watch: The importance of digitalization for businesses
Are you new to blockchain? To learn more about blockchain technology, check out CoinGeek’s Blockchain for Beginners section, our ultimate resource guide.