Queensland Treasury uses CBA blockchain for 'cryptobond' prototype

The Commonwealth Bank of Australia (CBA) has announced that the Queensland Treasury Corporation (QTC) will begin using a prototype of the bank's capital markets blockchain platform, to be executed via a virtual "cryptobond".

According to CBA, the Queensland government's central financing authority has already successfully used the bank's distributed ledger to generate a bond tender, view investor bids in real time, finalise investment allocation, and instantly settle with investors.

The QTC bond was created using smart contract technology and has the ability to automatically pay coupons to the current holder when due. The bond is only a working prototype, however, and thus is not tradable and does not carry any debt obligation.

The bank said the transaction marks the first trial of its private, permissioned blockchain platform for the end-to-end issuance of bonds, with the QTC arrangement the first blockchain bond issuance by a government entity globally.

"Our proof-of-concept demonstrates blockchain is capable of delivering efficiency to issuers, investors, and other market participants. Blockchain makes it possible to increase efficiency and transparency, which will redefine how capital markets operate," George Confos, executive general manager of Business & Corporate Finance at Commonwealth Bank, said.

"We will continue to collaborate and work with clients, financial institutions, and consortiums like R3, as well as with market participants, to understand the opportunities and real life applications of innovative and emerging technologies."

In October, CBA, in partnership with Wells Fargo and Brighann Cotton, claimed the first interbank trade transaction combining blockchain technology, smart contracts, and the Internet of Things (IoT).

The transaction involved a shipment of 88 bales of cotton from Texas, United States to Qingdao, China, with the trade involving a letter of credit being executed through a digital smart contract stored on a private distributed ledger -- using Skuchain's Brackets system.

CBA is not the only organisation in Australia to toy with Blockchain technology, with a project using a shared, distributed ledger that can store complete transaction history almost completed by the Australian Securities Exchange (ASX).

The exchange recently said its blockchain initiative is on track for a final decision in the second half of 2017, with the prototype complete and the organisation moving to build an "industrial-strength solution" to use as its equity settlement and clearing platform.

The ASX had announced last June that it was building a new post-trade solution using blockchain technology, asking for market feedback. This followed the ASX enlisting US-based firm Digital Asset at the start of the year to help it develop blockchain solutions for the equity market.

The Sydney Stock Exchange (SSX) similarly announced a project recently that would see it instantly settle trades using blockchain technology with the help of Sydney-based Bit Trade Labs.

"I've always been amazed that I can trade in the blink of an eye, in a millisecond on some exchanges. However, the clearing and settlement process can take between two and 30 days depending on what asset class you're trading," SSX director of market development Loretta Joseph said previously.

"It is our hope that we can lead to set policy recommendations that the government can adopt in order to facilitate blockchain-based innovations."

Australia's incumbent telco carrier Telstra also announced in September it was experimenting with a combination of blockchain and biometric security for its IoT smart home offerings.