What measures can investment banks take to secure smart contracts for bond issuances?

Smart contracts are self-executing agreements that run on blockchain platforms, such as Ethereum. They can automate and streamline the processes of issuing, managing, and trading bonds, reducing costs and risks for both issuers and investors. However, smart contracts also pose some challenges for investment banks, which act as intermediaries and advisors in the bond market. How can investment banks ensure that smart contracts are reliable, compliant, and compatible with their existing systems and services?

Find expert answers in this collaborative article

Selected by the community from 6 contributions. Learn more

1 Understand the benefits and limitations of smart contracts

Investment banks should familiarize themselves with the potential advantages and disadvantages of using smart contracts for bond issuances. Some of the benefits include faster settlement, lower operational costs, greater transparency, and enhanced security. Smart contracts can also enable more innovation and customization in bond design, such as programmable coupons, triggers, and covenants. However, some of the limitations include scalability, interoperability, legal uncertainty, and human error. Smart contracts are not immune to bugs, hacks, or disputes, and may require external verification or arbitration in some cases.

Add your perspective

Yogesh Thakur

Meticulous Lawyer with background in Corporate Laws, Litigation and Compliance.
Report contribution
Smart Contracts are good for one time non negotiable business transactions like accepting cookies, t & c, privacy terms, etc. before entering or installing any website and applications. In case you may not agree to certain terms of any Agreement, there you need external intervention by negotiating terms which may cause costs and time. In my understanding, Smart Contracts are and will always be used with limitations.

Like

Load more contributions

2 Choose the right blockchain platform and standards

Investment banks should carefully evaluate the different blockchain platforms and standards that support smart contracts for bond issuances. Some of the factors to consider include the level of decentralization, governance, consensus, privacy, and functionality. For example, some platforms may offer more flexibility and scalability, but less security and compliance, than others. Investment banks should also align their smart contract development with the industry best practices and frameworks, such as the International Token Standardization Association (ITSA) or the Token Taxonomy Framework (TTF).

Add your perspective

Load more contributions

3 Collaborate with regulators and stakeholders

Investment banks should work closely with regulators and other stakeholders in the bond market to ensure that smart contracts comply with the relevant laws and regulations. This may involve obtaining approvals, licenses, or exemptions from the authorities, as well as reporting and auditing requirements. Investment banks should also communicate and coordinate with their clients, partners, and service providers to ensure that smart contracts meet their expectations and needs. For example, investment banks may need to integrate their smart contracts with existing systems and platforms, such as custody, clearing, and settlement services.

Add your perspective

Load more contributions

4 Test and monitor the smart contract performance

Investment banks should conduct thorough testing and monitoring of their smart contracts before and after launching them in the bond market. This may involve using simulation tools, sandbox environments, or pilot projects to verify the functionality, security, and efficiency of the smart contracts. Investment banks should also implement contingency plans and backup mechanisms in case of any technical or operational issues or failures. Additionally, investment banks should track and measure the performance and impact of their smart contracts on the bond market, such as the liquidity, pricing, and demand of the bonds.

Add your perspective

Load more contributions

5 Learn and adapt from the best practices and cases

Investment banks should learn and adapt from the best practices and cases of using smart contracts for bond issuances in the industry. They should benchmark their smart contracts against the existing or emerging standards and protocols, such as the ERC-1400 or the ISDA Common Domain Model. They should also analyze and compare the results and feedback of the previous or ongoing smart contract-based bond issuances, such as the World Bank's bond-i or the Societe Generale's OFH token. By doing so, investment banks can improve and optimize their smart contracts for future bond issuances.

Add your perspective

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

Add your perspective

Michael Roberts

Managing Director & CEO at Go Asia Manpower
Report contribution
In addition to the aforementioned points, there are other significant issues relating to the topic. From an insurance perspective, the additional level of technology and the associated risk (hacking, etc.) could significantly increase insurance prices. Clients and buyers may feel uncomfortable leading to a smaller purchasing spectrum, and the risk of legal recourse for not operating in the best interest of a client could arise as well.

Like

What measures can investment banks take to secure smart contracts for bond issuances?

1

2

3

4

5

6

1 Understand the benefits and limitations of smart contracts

2 Choose the right blockchain platform and standards

3 Collaborate with regulators and stakeholders

4 Test and monitor the smart contract performance

5 Learn and adapt from the best practices and cases

6 Here’s what else to consider

Investment Banking

Rate this article

Thanks for your feedback

More articles on Investment Banking

More relevant reading