The IDB Group and Colombia’s Davivienda Bank have completed the first blockchain-based bonds in Latin America and the Caribbean.
The IDG Group includes the Inter-American Development Bank, IDB Invest and IDB Lab.
Davivienda Bank, part of Grupo Bolívar, is the second largest bank by gross loans in Colombia, with a network of over 660 branches and nearly 2,700 ATMs in Colombia and at international subsidiaries.
The first-of-its-kind project was completed within Colombia’s regulatory sandbox or “la Arenera” – the sandbox of the Financial Superintendence of Colombia for testing Fintech.
The IDB explains that the entire bond issuance and management process was managed on blockchain. This includes; the processes of authorization, initial registration, and subsequent cancellation of the bond’s registration in the National Registry of Securities and Issuers (RNVE), as well as the issue, trading, payment registration, and compliance of the bond.
The IDB explains that by using blockchain, the entire process was streamlined, bringing down the costs over a complete trading cycle on the Colombian capital market.
According to a post on LinkedIn, the project utilized smart contracts, non-fungible tokens (ERC-721), and Elliptic Curve Digital Signature Algorithm (ECDSA) encryption for all documents, actions, and audits. The team met twice a week for over two years to complete the trial.
The bond was underwritten by IDB Invest and had a total issue size of COP$110 million.
It was purchased by IDB Invest through a transaction conducted on the LACChain blockchain network, the infrastructure enabled by IDB Lab as a regional public good.
The pilot issue was carried out within IDB Group, which provided logistical and regulatory support for the project.
The Bank of the Republic of Colombia, which is the country’s central bank, and the Financial Superintendence of Colombia supervised the processes of the bond’s trading and compliance cycles.
Javier Suárez, President of Davivienda, noted that his bank has been a pioneer in Colombia in working with blockchain:
“On this occasion, we are very pleased to announce the success of this first pilot, which we had the opportunity to develop together with such important partners. The use of this technology transforms the role of actors in the securities market and the way in which bonds are issued and processed, resulting in a more transparent, rapid, and secure market. This facilitates a reduction in the costs and complexity of issuance, allowing for more and more participants. In this way, the success of this pilot represents an opportunity to continue working towards financial inclusion, in this instance in the stock market.”
Kelvin Suero, Acting Representative of the IDB Group in Colombia, said the project was indicative of the ability of public and private groups to lead innovation in capital markets. Suero said this opens the door to fundamental changes in securities trading:
“We hope this experience can be replicated in similar pilot projects in Latin America and the Caribbean.”
The project is expected to lay the groundwork for promoting and encouraging the use of new technologies in finance for Colombia.