Israel’s ‘Project Eden’ successfully issues a digital government bond on the blockchain

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(Kitco News) – The Tel Aviv Stock Exchange (TASE) and the Office of the Accountant of the Israeli Ministry of Finance (MOF) have announced the successful completion of the Proof-of-Concept (PoC) phase for Project Eden, a blockchain-based digital bond system created as part of the Israeli government’s efforts to modernize the country’s financial markets.

The project, which was first announced in October, was designed to showcase the potential of innovative technologies such as blockchain, smart contracts and tokenization to reduce risk and improve efficiency and transparency in financial markets.

“Project Eden is very important for the Tel Aviv Stock Exchange,” said Ittai Ben Zeev, CEO of TASE. “Within TASE, we have enormous technology talent and market structure leadership. We believe that capital market information will be completely different in a few years, and it is our job to lead the revolution.”

“This joint endeavor marks a significant milestone in revolutionizing the settlement and issuance processes in traditional capital markets,” the announcement said. “The collaborative team has dedicated significant effort and expertise to investigate the use of blockchain infrastructure in the issuance and settlement of digital government bonds.”

As part of the trial, TASE held a live event on May 31 that brought together prominent international and local banks, including Bank Discount, Bank HaPoalim, Bank Leumi, Bank Mizrahi, Barclays, BNP Paribas, Deutsche Bank, First International Bank, Goldman Sachs, JP Morgan and Merrill Lynch.

During the live event, MOF issued and minted the first “dummy digital government bond” on a blockchain-based platform as an ERC-1155 security token using a dedicated decentralized app (dApp) that was specially developed for this PoC.

A digital “payment token” representing one Israeli shekel was also introduced as part of the Eden ecosystem. The payment token served as a fundamental component of the settlement process.

“During the Live day event, the primary traders securely transferred dummy funds through their digital accounts,” the press release said. “The Eden system was constructed in this configuration to facilitate the settlement of security tokens against various digital currencies, potentially including central bank digital currencies (CBDCs). This is consistent with ongoing projects led by central banks around the world as they explore the integration of CBDCs in traditional financial systems.”

‘Atomic Settlement’ was used to complete the settlement process between the security tokens and the payment tokens, “transforming the traditional securities settlement process through the dedicated TASE Bond Management smart contract.”

The TASE Bond Management smart contract acted as an intermediary between the issuer and the investors, helping to ensure the verification of valid and approved tokens, preventing inconsistencies or incomplete transfers, and guaranteeing the accurate transfer of tokens.

“The go-live event demonstrated the successful implementation of advanced technologies, demonstrating their ability to transform financial markets, including the issuance, settlement and clearing of financial assets such as government bonds,” TASE said. “By leveraging DLT [distributed ledger technology] and tokenization, financial institutions can increase efficiency, reduce operational risk and create new opportunities for investors, thereby transforming traditional financial markets.”

“The success of the Live Day event brought to reality what we all envisioned – the interoperability across wallets and token standards that enables near-frictionless issuance and trading of government bonds,” said Michael Shaulov, co-founder and CEO of Fireblocks.

“There is no doubt that the world is undergoing significant changes, which are also affecting traditional systems,” said Orly Grinfeld, Executive Vice President and Head of Clearing at TASE. “By leveraging blockchain technology, smart contracts and tokenization, we have the potential to improve traditional capital markets, making them more efficient, faster and less risky. This has the power to revolutionize the way we do business. By leveraging this technology, traditional exchanges can create new business models, and ultimately improve the services we deliver to our valued investors and customers.”