A blockchain framework for digitizing securities issuance: the case of green bonds

Abstract

ABSTRACTBond issuance is a highly technical and complicated process, including disparate regulatory frameworks, limited traceability and auditability, settlement failures, and mutually untrusted stakeholders. Green bond issuance presents additional challenges, as the qualification of a bond as ‘green’, third-party verification is needed to guarantee that the proceeds fund environmentally beneficial projects. This implies additional administrative and compliance costs. Blockchain technology can address some of the issues mentioned above, to establish trust in impact reporting green bond processes. To this end, we propose a blockchain-enabled green bond issuance architecture that safeguards investors' confidence in the bond's green credentials while keeping the issuer from being accused of greenwashing. To adjust the process of bond issuance to a blockchain-enabled model, we tokenize the bonds. The digital token is created through a smart contract with a specific standard (in our case, ERC-20). Within the smart contracts developed, we use various functions to handle the prerequisites of validators and regulators' approval based on the documentation presented and the parameters of rate and maturity requested by the issuer. We use a separate smart contract to offer forensic-by-design services. The overall system also considers various regulatory compliance instruments and enhances the access of regulatory bodies to issuance records.KEYWORDS: Securities issuancegreen bond issuanceblockchaindigital tokenssmart contracts AcknowledgmentsThe views expressed are those of the authors and do not necessarily reflect those of the Piraeus Bank.Disclosure statementNo potential conflict of interest was reported by the author(s).Notes1 https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/nextgenerationeu-green-bonds_en2 https://www.worldbank.org/en/news/press-release/2018/08/09/world-bank-mandates-commonwealth-bank-of-australia-for-worlds-first-blockchain-bond3 https://www.bis.org/about/bisih/topics/green_finance/genesis_2.htm4 https://nodejs.org/5 https://github.com/trufflesuite/ganache-cli6 http://truffleframework.com7 https://docs.openzeppelin.com/contracts/3.x/api/token/erc208 https://docs.soliditylang.org9 https://github.com/bagmalamas/Green-Bond-Issuance10 https://ipfs.io/