Germany’s state-owned KfW, ranked as the world’s safest bank based on global agency ratings, has invested in crypto securities. This is the German term for bearer securities issued on a blockchain without using a central securities depository (CSD). KfW invested €10 million ($11.4m) in the blockchain Pfandbrief (mortgage bond) issued last year by Berlin Hyp, a subsidiary of LBBW.
Berlin Hyp launched its €100 million ($114m) Pfandbrief during the European Central Bank wholesale DLT settlement trials. It is the first Pfandbrief issued as a crypto security under Germany’s Electronic Securities Act (eWpG). Berlin Hyp used the SWIAT blockchain, in which LBBW is an investor alongside founder DekaBank and others.
KfW said it was keen to buy in the secondary market, as liquidity is currently lacking. The bond was acquired via an over the counter (OTC) transaction with DekaBank acting as market maker and seller. The eWpG replaces the need for a CSD with cut down requirements for a crypto securities registrar, with DekaBank taking on that role. Rather than directly integrating with the blockchain, KfW simply used DekaBank as custodian and settled in the conventional manner.
“As an internationally very active capital market participant, we want to put a strong emphasis on digitalisation by highlighting innovation opportunities as an issuer and as an investor. We see clear long-term advantages in the use of DLT (Distributed Ledger Technology) in the financial market, as transactions are carried out faster and more efficiently,” said Tim Armbruster, Treasurer at KfW Group.
KfW highlighted some of the key steps that are needed for digital securities to gain traction. They include the:
- Development of secondary markets
- Central bank settlement options
- Central bank recognition of digital securities for collateral purposes
- A more integrated European network compared to the current fragmentation with numerous independent platforms.
KfW as digital securities issuer
Meanwhile, KfW is one of world’s largest issuers of bonds and digital bonds. So far it has issued two bonds as crypto securities totaling €150 million. Both were issued on the Polygon blockchain and one of them was settled using the German Bundesbank’s Trigger solution as part of the ECB wholesale DLT settlement trials.
In addition to crypto securities issued on a decentralized DLT, Germany’s Electronic Securities Act (eWpG) also supports digital securities issuance on a centralized platform using a CSD. KfW has issued €17.5 billion in digital securities using Deutsche Börse’s D7 platform. Despite the D7 platform using DLT, technically most of its transactions have been centralized.
Source: ledgerinsights
