DZ BANK, acting as issuer, and KfW, as investor, have completed a crypto security issuance under Germany’s Electronic Securities Act (eWpG) using a Smart Bond Contract (SBC). The transaction mapped the full lifecycle of a digital bond on blockchain infrastructure, from initial liquidity demand to issuance and settlement. Smart Bond Contracts (SBCs) use algorithms to coordinate participants’ actions based on predefined conditions, automating processes across the bond’s lifecycle. They run on distributed ledger technology (DLT), which provides a shared, tamper-resistant record of transactions and enables automatic execution, such as triggering payments when conditions are met.
Matthias Bergner, Head of Treasury at DZ BANK, said, “This transaction marks a genuine innovation in the financial market.” KfW has previously participated in digital bond issuances both as issuer and investor. The bank views such transactions as part of its broader efforts to support financial market digitalisation and test new infrastructure.
To keep the German and European financial markets competitive, we need scalable digital products. The parties conducted the transaction without a central securities depository. Required service providers contributed data directly to the DLT system. Blockchain served as the primary communication layer, ensuring that transaction data remained immutable and visible to all participants.
The pilot, executed on the Polygon blockchain, included automated ISIN assignment by WM Datenservice and digital registry services by Cashlink. The Deutsche Bundesbank’s trigger solution carried out settlement, linking blockchain processes with central bank balances. The transaction completed in around one hour, compared with the approximately five days required for a traditional bond. This transaction marks a milestone in Europe’s push toward digital sovereignty and market digitalisation, demonstrating how regulated crypto securities can be issued and settled efficiently using SBCs and DLT.
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