Ledger Insights is a media partner of the Hyperledger Global Forum, which kicks off Monday in Dublin and will also be broadcast live. A die opening speech includes leaders from LACChain and Alastria on public infrastructure networks.
IDB Lab Highlights. This:
- launched LACChain, the authorized public network with over 90 organizations running nodes
- was involved in two groundbreaking symbolic bond issues
- plans to tokenize money for development bank disbursements
- wants to support more basic blockchain applications that impact everyday life.
IDB Laboratorythe Inter-American Development Bank (IDB) Innovation Lab, pioneered blockchain in Latin America (LATAM) and the Caribbean by founding LACChainthe authorized public blockchain network based on Hyperledger Besu.
Irene Arias Hofman, CEO of IDB Lab, knows a thing or two about collaborative networks. However, there were some bumps in the road in IDB Lab’s efforts using blockchain in capital markets, which the Lab was able to resolve.
The bumpy road to blockchain bond innovation
In July, he announced a groundbreaking Spanish blockchain bond issue, in which the IDB issued a $10 million digital security listed on the Spanish BME market and sold to private market participants. Rather than a sandbox event, it was a regulated tokenized bond on the main market settled with tokenized money. It turns out that at an advanced stage of the project, a key player has been replaced.
Talking about the reasons, “It was the first time that a lot of counterparts played their part,” said Arias Hofman. But she added: “Each part has to be ready to adapt.”
She congratulated the final group of project participants. “It is really important to have full commitment from the leaders of the institutions,” added Arias Hofman. Someone from the Spanish bank BBVA played the role of champion to push the project forward. BBVA assumed the roles of tokenizing the money used for payment and acting as a digital custodian, digital structurer and active bookrunner for the bond issuance. Citi was the agent and ioBuilders was the technology partner.
During the project, BME/Iberclear went through a merger process with the SIX exchange. When they asked SIX to continue the project, the new owners said they had something great and supported them to continue. This is not surprising as SIX is very active in the blockchain tokenization sector, having launched the SIX Digital Exchange.
The main Spanish participants are all active in Latin America, including the legal advisor, which makes the solution portable.
Colombian blockchain bond
In another capital first, in late August, Davivienda Bank issued a $110 million COP ($25,000) Colombian blockchain bond as a pilot in the country’s regulatory sandbox. The project included participation from the central bank and securities regulator, with IDB Invest buying the bond, which was issued on the LACChain blockchain.
Apart from the payment, the entire bond issuance process was executed on the blockchain. This included all procedures with the National Registry of Securities and Issuers as well as issuance, trading and compliance. The next obligation should be settled using tokenized money.
Compared to the Spanish version, it was a pilot and much more controlled. It was in a sandbox, it was a small quantity and was not offered in the market. However, the IDB expects it to be fully commercialized so that private investors can use it.
The blockchain roadmap
Regarding the next steps, the IDB wants to offer a tokenized bond solution to financial institutions. He has a small internal advantage.
One of the three divisions of the IDB is IDB Invest which has 500 private clients consisting of financial institutions, infrastructure companies and real estate companies. It issues between 7 and 8 billion dollars a year, many of which are thematic bonds. “We almost have a captive market to offer this option,” Aria Hofman said. He hopes to start with countries that have digital-savvy regulators.
The second part of the roadmap is to use the blockchain for digital payments, and in particular for its own smart contract disbursements. As a development bank, the organization makes billions of payments each year.
He sees social transfers executed on the blockchain as a key opportunity, including to help farmers.
In line with these efforts, last year the development bank conducted a proof of concept with Citi for tokenized cash for cross-border remittances.
However, Arias Hofman stressed that reducing the cost of remittances is one thing, but the process has to work end-to-end in a very money-driven society, especially in rural areas where the IDB is active.
If someone receives a digital payment, they should be able to easily convert it to cash. One of the main efforts going forward, therefore, is to target the unbanked and grow the use cases that have a social impact.
Speaking of digital currency, with an organization the size of the IDB, one has to wonder if it is working on central bank digital currency (CBDC) projects. Arias Hofman implied that the IDB was not. “A CBDC by a central bank could be ideal. But in LATAM and the Caribbean, even though many of them are investigating it, they are still a bit reluctant. So a stablecoin by a commercial bank can also work. She suggested a third option was to use a tokenized solution like Visa or Mastercard.
Besides its efforts in capital markets and digital payments, the IDB’s main blockchain achievement is the creation of the LACChain blockchain network. In February, governance of the network moved to an independent structure, LACNet.
Currently, 91 organizations are involved in 178 blockchain nodes running on the mainnet and testnet. Most other authorized public blockchain networks are much less decentralized. For example, Hedera has 26 governance organizations and Klaytn has 36 members.
Sixty-four solutions have already been deployed on the network using Hyperledger Besu. These include applications in agriculture, healthcare, education and other industries. Several have deployed digital identity and verifiable credentials for vaccination certificates, education credentials and other purposes.
But there’s a big difference between these consumer-focused apps, which have a more tangible benefit to people’s daily lives, and capital markets solutions. “The beauty of this (capital markets) is that we can (execute) at very large scale immediately,” Arias Hofman said. “But it is more difficult to see the impact on the ground. And these 64 solutions provide an incredible platform from which to grow.