In a ground-breaking collaboration, the Stock Exchange of Israel, in partnership with the Accountant General of the Ministry of Finance, recently completed a Proof of Concept (PoC) phase for Project Eden – a pilot issuance of digital bonds using a blockchain platform, innovative technologies such as Distributed Ledger Technology (DLT), smart contracts, and tokenization. This experimental initiative, facilitated by FireBlocks, VMWARE, and Blockfold, marks a major breakthrough in redefining the settlement and issuance mechanisms of traditional capital markets.
The main objective behind this innovative undertaking was to enable the immediate, real-time fund transfers, eliminating the current sluggish and time-consuming methods. By leveraging blockchain technology, the new system allowed for instant clearing of digital bonds against digital currencies, fundamentally transforming the bond issuance process. Instead of waiting for funds to be transferred over several days and subsequently transferring the bond to the winning bank, the blockchain-based solution enabled instant transfer of the bond on the chain and the seamless transfer of digital tokens to the state.
To facilitate the experiment, a dedicated platform was established to enable 12 local and international banks to hold balances of digital bonds and designated digital currencies issued solely for this purpose. Concurrently, the Treasury issued bonds and conducted an auction through the Bloomberg system, enabling the participating banks to bid for a predetermined amount. The novelty of the project lay in the fact that the auction results were cleared through the new system, allowing for the immediate settlement of digital bonds against digital currencies.
Yehli Rotenberg, the Accountant General, hailed this experimental project as a pioneering endeavor, the first of its kind worldwide. He emphasized that embracing technological advancements is crucial for improving efficiency and effectiveness. “Project Eden is at the forefront of global cutting-edge technology for the issuance and clearance of digital securities and will contribute to the improvement, streamlining, and accessibility of the financial system for the benefit of the general public”, said Rotenberg.
Idan Efrat, VP of Product and co-founder at Blockfold, highlighted the global trend towards the utilization of digital assets in various financial sectors. As digitalization continues to reshape the financial landscape, countries worldwide are exploring the potential benefits and challenges of digital currencies. While no developed nation has yet issued a digital currency, the Bahamas has taken the lead with its sand dollar.
The Bank of Israel, cautious in its approach, is carefully evaluating the issuance of a digital currency that could revolutionize fund transfers within the country. The bank acknowledges that technological developments in the payments system will play a crucial role in its decision-making process. As advancements continue to unfold, it is conceivable that a digital shekel could offer an efficient and secure platform for advanced technological applications.
Itai Ben Zeev, CEO of the Stock Exchange, stressed the importance of these experimental projects in preparing the organization for future technologies and refreshing its strategic thinking. He emphasized that the landscape of information and products in the capital market will undergo a complete transformation in the coming years, necessitating proactive involvement and leadership.
Setting aside the associated risks related to the use of digital currency and its potential impact on privacy, the successful pilot project of digital bond placement in Israel, powered by blockchain technology, represents a remarkable breakthrough in the realm of corporate finance. This experimental initiative has marked a significant milestone in the country’s financial sector, showcasing the potential to streamline fundraising procedures and reduce government costs. Additionally, it paves the way for future possibilities such as the introduction of a digital shekel, enabling swift transfers, remote payments, and direct wallet-to-wallet transactions. As Israel continues to delve into the prospects of a digital currency, it positions itself at the forefront of the global financial revolution, wholeheartedly embracing technology to shape the future of finance.