Israel plans to issue blockchain government bonds

The bonds will be issued through a private, centralized blockchain platform based on smart contracts. Fireblocks and VMWare are responsible for the technical implementation of the project. Fireblocks provides infrastructure solutions for storing cryptocurrencies, while VMWare offers cloud computing and virtualization services. 

According to a Fireblocks representative, despite the privacy of the blockchain used for government bonds, it is compatible with Ethereum. Hence, if the Ministry of Finance decides in the future to issue digital bonds on a public chain, it won't cause any difficulties. 

The Proof of Concept will include the tokenization of new government bonds which will be issued in a limited amount to certain primary traders. The tokenized bonds will be sent to the traders' crypto wallets. The pilot project is expected to be completed by Q1 2023.

“Israel is one of the few countries where government bonds are publicly traded, so we have an opportunity to create digital bonds jointly with the Israeli government and leading international banks”, said Orly Greenfeld, director of the TASE clearing department. 

The Tel Aviv Stock Exchange hopes testing will show how blockchain technology can be used to reduce bond issuance costs, improve transparency and automate processes.

As you may remember, Societe Generale and MakerDAO experimented with digital bonds in 2021. However, unlike Israel, they used an open-source blockchain on Ethereum. 

The first bonds created using digital ledger technology (DLT) were issued by the World Bank in 2018. After that, the TASE and the Israeli Ministry of Finance said they would monitor the tokenization of the financial market. Both entities also said they were studying digital currency test runs of central banks. 

Note that the Philippines already uses DLT-based bonds, which allowed the country to raise $186 million from the debt instrument in 2022.