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KfW to Issue Its First Blockchain-Based Digital Bond
- Digitalisation is key to the competitiveness of the European financial market
- KfW wants to intensify the discussion on crypto stocks and attract market participants
KfW is currently preparing to issue its first blockchain-based digital bond in the form of a crypto security in accordance with the German Electronic Securities Act (eWpG). The transaction is expected to be completed in the summer of 2024.
“The digitalisation of the financial sector plays a crucial role in the international competitiveness of the European financial market. As the largest German promotional bank, one of our most important objectives is to make an active contribution to the development of the digital securities market in Germany and Europe. With the planned issuance of our first crypto security under the German Electronic Securities Act we are once again testing an innovation on the financial market and aim to pave the way for future transactions of this type for other market participants,” explains Melanie Kehr, member of the KfW Group Executive Board and responsible for IT, transaction management and operations.
Since 2022, KfW has gained experience with the digitalization of its money market and derivatives activities and has already issued a first digital bond in the form of a central register security in accordance with the German Electronic Securities Act. “We are taking the next big step with the issuance of a blockchain-based bond for which we want to attract as many investors as possible,” added Tim Armbruster, treasurer of KfW. The combination of technological progress and a regulated environment provided KfW with favorable conditions to take the next step. «The initial objective in the journey towards the digitalisation of refinancing is to learn and thus identify the potential for improvement. We believe that digitalization will be beneficial in terms of increased efficiency and scalability,” said Armbruster.
KfW places particular emphasis on the importance of investor involvement. For this reason, during a preparatory phase lasting several weeks, an exchange of knowledge will take place in dialogue with European institutional investors. This is to give investors sufficient time to familiarize themselves in detail with this type of transaction.
KfW has already managed to win over Union Investment as an important anchor investor. This company already has extensive experience with crypto securities, which is essential for preparing the transaction.
The transaction will be carried out by a consortium of bookrunners consisting of DZ Bank, Deutsche Bank, LBBW and Bankhaus Metzler. These will also be included in the dialogue with investors. Additionally, DZ Bank will also act as the registered collective holder of the bond.
“Digitalization simplifies capital market processes for the benefit of the real economy; transactions become safer, capital flows faster. It also links European capital markets more closely together. As DZ BANK Group, with the custody solution for digital securities, we make an important contribution to achieving this goal,” said Souad Benkredda, member of the board of directors of DZ BANK AG.
Frankfurt-based fintech Cashlink Technologies GmbH will serve as the crypto securities registry.
With this transaction, KfW limits itself to issuing the bond issue in digital format. Payments will continue to be processed in the traditional way using established payment systems.
You can also find explanatory notes with diagrams on the previous digitalisation phases of KfW here(PDF, 1 MB, not accessible) .
Source: KfW