Amidst a trial involving Central Bank Digital Currency (CBDC), a Swiss city is set to issue a tokenized bond worth $113 million.

in brief

• St. Gallen joins as the fourth Swiss municipality to release tokenized bonds, compatible with settlement using the Swiss Franc CBDC.
• The bond is slated to mature over a three-year period, and its settlement is integrated into a Swiss trial concerning its wholesale CBDC.
•  Among regulatory bodies in Europe, Swiss FINMA stands out as one of the earliest to grant licenses to custodians, reflecting a proactive stance in oversight.

As part of Switzerland’s CBDC trial, the Swiss city of St. Gallen joins the Canton of Zurich, the City of Basel, and Lugano in issuing tokenized bonds.

St. Gallen’s Digital Bonds and CBDC Trial: Exploring Flexible Settlement Options and Financial Innovation

St. Gallen’s digital bonds, set to mature over three years, offer the flexibility of settlement using either the Swiss Franc CBDC or tokenized euros. Like the bonds issued by the other three regions, St. Gallen’s bonds are included in a trial aimed at testing CBDC transactions among financial institutions. Leading the management of this bond issuance are Kantonalbank, UBS, and J. Safra Sarasin. Bonds represent a form of debt instrument utilized by companies or governments to raise funds from investors. Typically, bonds have maturity periods ranging from three months to thirty years, after which the issuing entity repays the principal amount. Some bond types feature coupon payments, allowing lenders to receive regular interest payments until the bond reaches maturity.

Tokenized bonds are essentially bonds that can be settled using blockchain infrastructure. Companies like SDX transform these bonds into ownership certificates compatible with blockchain technology. Subsequently, the company can oversee both the issuance and settlement processes using distributed ledger technology, a task that researchers at the Universitat Politècnica de València in Spain note is quite complex.

“Designing a tokenized platform involves several critical factors, including scalability, security, and user experience. Scalability is vital as the platform should be able to handle a vast number of transactions without experiencing performance issues. High-performance computing infrastructure, such as cloud computing services and efficient consensus algorithms such as proof-of-stake or sharding are crucial in achieving this,” said Angel A. Juan et al.

European Regulators Lead the Way in Real-World Asset Tokenization: Insights from Switzerland, Germany, and the Middle East

European regulators have been pioneers in the legalization of tokenizing real-world assets (RWAs), marking a significant advancement in the financial landscape. Notably, in 2021, the Switzerland Financial Market Supervisory Authority granted the SIX stock exchange a groundbreaking license to establish SDX. This milestone positioned the regulator as one of the global frontrunners in issuing dual licenses, empowering SIX to operate both a traditional stock exchange and a cutting-edge blockchain-based depository institution.

Moreover, Goldman Sachs played a pivotal role in facilitating the launch of a $65 million tokenized bond for Germany’s Siemens AG on a public blockchain last year. This initiative, compliant with Germany’s Electronics Securities Act, showcases the integration of blockchain technology into traditional financial instruments, underscoring the growing acceptance and adoption of digital assets in European markets.

Meanwhile, regulatory developments in the Middle East are also making significant waves. The financial watchdog of the Abu Dhabi Global Markets region took proactive steps by drafting legislation that enables companies like Bridgewater and Deus X Capital to establish institutional blockchain businesses. Their pioneering $250 million platform offers institutional crypto staking services with delegated assets, highlighting the region’s commitment to fostering innovation and embracing emerging financial technologies.

Southeast Asian governments have demonstrated notable progress in the realm of cryptocurrency regulation. The Monetary Authority of Singapore recently granted a crypto brokerage license to the local branch of Switzerland’s Sygnum Bank. Around the same time, Hong Kong’s Securities and Futures Commission suggested that it was in the process of developing regulations related to tokenization. BeInCrypto reached out to the Swiss city of St. Gallen for comment but has not received a response as of press time.