Daiwa Securities introduces digital bonds leveraging Rakuten’s e-money for interest payments

Capital market company Daiwa Securities is issuing JPY 1 billion (US$6.6 million) digital bond offering leaning on blockchain technology.

The new bond will be issued via MUFG’s tokenization platform, Progmat, and is expected to be open to a broader investment class. Previous iterations of a digital bond are typically restricted to institutional investors, but Daiwa’s Securities latest offering will focus on retail investors.

A key feature of the digital bond issuance is the interest payment on the bonds. Daiwa Securities disclosed that interest will be paid via Rakuten’s Edy, a prepaid type of e-money accepted by over 400,000 merchants in Japan.

While the strategy for interest payments appears forward-thinking, critics have expressed dissent in the non-transferability of value on Rakuten’s Edy. A quick search on the platform indicates that stored value is non-refundable, and in cases of loss or theft, holders will be unable to access stored funds.

However, there are speculations that Daiwa Securities may turn to stablecoins and utility tokens to make interest payments outside of fiat. The speculation stems from Progmat’s incoming solution for stablecoin issuers and the significant steam gained by the project since mid-2023.

The latest $6.6 million bond offering sees Daiwa Securities enlist Rakuten Securities as co-underwriters, with Mizuho roped in as bond administrators. Japanese finance giant
MUFG is billed to operate as a bond ledger manager, given its wealth of experience with Progmat.

Daiwa’s Securities’ latest attempt at digital bonds is intended to put significant distance between it and rival Nomura. At the end of 2023, the company underwrote JPY 22.6 billion (US$152 million) in security tokens using blockchain for transparency and interoperability.

Previous attempts at embracing digitization have seen Daiwa Securities explore digital corporate bonds using BTC’s Lightning Network and digital assets for a DvP settlement offering. The total of its digital drive has seen the company’s value climb by over 13% since the start of the year.

The promise of digital bonds

Digital bonds are growing in prominence, with traditional financial institutions turning to the blockchain to issue bonds. Banking executives point to cost-saving benefits associated with digital bonds, while others are pushing instant settlements as a key reason for their pivot.

“When you do an issuance, that settles within minutes or seconds of issuing,” David Newns, CEO of SIX Digital Exchange, remarked in October 2023. “From a treasury perspective, you can see you immediately hold that bond.”

However, others are proceeding with caution, given the technological, security, and legal risks associated with digital bonds. Proponents of the technology advocated a dual approach toward digital bonds with a similar traditional bond in the event of a black swan event.

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