Siemens turns to blockchain for bond issuance

Siemens AG is jumping on the blockchain bandwagon by being one of the first to issue digital bonds in compliance with the Electronic Securities Act of Germany (Gesetz über elektronische Wertpapiere or eWpG). The move is considered to pave the way for the company’s faster and more efficient way of issuing bonds going forward.

On February 14, Siemens became one of the first companies in Germany to take advantage of the benefits blockchain offers in bond issues. The digital bond in question comes with a volume worth €60 million and a one-year maturity.

The giant manufacturing company’s press release did not disclose the interest rate for the bond. However, it mentioned that its key investors included DekaBank, DZ Bank and Union Investment.

Advantages presented by blockchain-based bonds

The use of blockchain technology in bond issues offers many advantages for Siemens and for others who plan to follow in their footsteps. Among the most important benefits realized in the process are the following:

• First, the paperwork is greatly streamlined as it eliminates the need for manual issuance of certificates and a central clearinghouse.
• Second, the bond can be purchased directly by an investor without a third party acting as an intermediary, such as a bank or other financial institution.
• Third, the blockchain approach removes regional barriers and gives the company wider access to a pool of potential investors.
• Finally, the payments can be made using classic methods using the parties’ bank accounts. This has the potential to be made more practical once the digital euro is enforced.

Siemens noted that the integration of the bond issue into the blockchain allowed it to complete the entire transaction in just two days. The length of time for the transaction may be reduced when the digital euro comes to fruition.

The sad news, however, is that the digital euro may not be in circulation until 2027. The European Central Bank (ECB) said the concept is still in the “exploratory phase”. The “realization phase” may not come before the autumn of this year. In the meantime, the extensive testing of the prototypes could last at least three more years. Finally, some considerations and a decision will have to be made before implementation and circulation.

The platform used for the Siemens bond issue

Siemens is using Polygon’s public backbone to manage its new venture into bond issuance. Polygon’s decentralized scaling solution takes advantage of the Ethereum blockchain network.

With the use of a sidechain, a secondary blockchain that enables faster and cheaper transactions, it addresses several issues that the Ethereum network is currently experiencing. As a result, developers can create decentralized applications (DApps) that are secure, easy to use and scalable.

Final thoughts

The experience Siemens has gained in its new bond issuance process will surely serve as a useful reference for other companies looking to streamline their securities issuances in the future. Aside from the potential benefits for firms, this streamlined solution with fewer barriers will definitely cut investors some slack and has the potential to attract a wider range of institutional and private investors along the way.