A digital instrument such as a digital bond (DB) differs from a conventional instrument primarily because it uses distributed ledger technology (DLT) at one or more points during its life. Blockchain is an example of DLT.
DLT permits copies of cryptographically secured data to be recorded on a distributed ledger and held by participating computers (known as nodes) in multiple locations simultaneously via a peer-to-peer system. This arrangement can make a DLT-based system resilient: if one of the nodes fails, other nodes hold copies, so there is no system failure and data remains accessible.
Digital products, and the infrastructure to support them are evolving, fragmented, and pose unique challenges and risks for issuers and investors, and for financial market stability and functioning
Proponents of DLT and digitisation generally, mention its advantages: transparency, speed of processing, automation, and data security.
Caveats that treasurers should bear in mind when considering these alternative digital funding markets are: potential and risk.
Digital products, and the infrastructure to support them are evolving, fragmented, and pose unique challenges and risks for issuers and investors, and for financial market stability and functioning.
The high research and development costs and the widespread ramifications for markets and financial stability, has meant governments, supranationals, central bankers, regulators, and legislators are the driving forces behind the evolution of digitisation of finance
A year ago, Slovenia became the first eurozone sovereign to issue a digital bond. “The future in the sector [digital markets] lies in achieving efficient interoperability between traditional clearing and settlement systems and their digital counterparts.” notes Marjan Divjak, Director General of the Ministry of Finance’s treasury department, Republic of Slovenia
One of the investors in Slovenia’s digital bond issue was BNP Paribas Asset Management Europe (formerly AXA Investment Managers). “Investing in digital bonds is a different process to the traditional framework and therefore requires major involvements from all key functions,” said Laurence Arnold, of BNP Paribas.
The high research and development costs and the widespread ramifications for markets and financial stability, has meant governments, supranationals, central bankers, regulators, and legislators are the driving forces behind the evolution of digitisation of finance.
They’ve fostered participant cooperation and the creation of a common operating framework and infrastructure of integrated DLT platforms able to communicate among themselves and, crucially, with existing non-digital infrastructures (interoperability).
In February 2026, the UK government announced plans to issue tokenised gilts (DIGIT) on a DLT platform, “to understand how the UK can capitalise on this technology, deliver efficiencies and reduce costs for firms”.
The hope of the UK government’s controlled digital infrastructure experiment is that a successful sovereign bond issue will be rolled out and adopted by various UK financial markets and so showcase UK as being a digitally capable IFSC.
Central banks intermediation and sponsorship is expected to bring confidence, rigour and stability to digital markets. Offering central bank money to settle transactions will lower settlement and counterparty risks, attract participants, and facilitate the interoperability and integration of DLT.
While it is now possible to issue DBs in European bond markets, and in other continents, treasurers should bear in mind associated legal impediments to a successful digital funding transaction
Existing clearing and settlement systems such as DTCC, Clearstream and Euroclear, are trying to set standards to facilitate the adoption of tokenisation across the financial sector (tokenisation is the transformation of a conventional instrument, such as a bond, into a digital form and its recording on a DLT platform. In that form, it is called a ‘token’).
While it is now possible to issue DBs in European bond markets, and in other continents, treasurers should bear in mind associated legal impediments to a successful digital funding transaction.
“Harmonised legal frameworks are essential to facilitate cross-border digital bonds transactions,” said the bank, BNP. Market players “must distinguish early between native digital bonds and tokenised traditional bonds, as this choice drives property law treatment, custody and settlement risk”, says Cadwalader special counsel Assia Damianova.
Even if potential digital funding cost savings are realised, these will be offset to some extent by new costs unique to digital funding. For example, the DLT platform itself, and the interface between it and a conventional settlement infrastructure. Additional internal costs will also be incurred (by issuers and investors) in building and maintaining internal infrastructure to value, price, and administer digital transactions.
Generic external costs applicable to digital and non-digital funding instruments are likely to continue (depending on the features of each instrument), such as arranging, underwriting, listing, bank accounts, insurance, accounting, and legal services.
Some DBs have been issued alongside conventional bonds. For example, Hitachi simultaneously issued a Yen 10bn DB maturing in five years, and two conventional bonds of Yen 30bn and Yen 50bn, maturing in seven and 10 years respectively.
Maintaining access to DLT and conventional funding markets provides treasurers with funding flexibility, diversification, potentially larger pools of capital, and lowers funding risk, but there is a price to pay for maintaining multiple funding channels.
There is a dearth of corporate funding in the digital space under standalone real-world environments. However, in Part 2 we’ll look at one company that issued digital commercial paper and at another that issued a digital bond.
Permjit Singh FCT is a regular contributor to The Treasurer
