Israel poised to release world's first digital government bond

The collaboration between the TASE and the Finance Ministry's Office of the Accountant General "marks a significant milestone in revolutionizing the settlement and issuance processes in traditional capital markets," the TASE said.

A go-live event at the TASE on May 31 brought together prominent international banks, including Barclays, Deutsche Bank, First International Bank, Goldman Sachs, JP Morgan and Merrill Lynch, among others, as well as Israel's banks.

During the event, the Ministry of Finance issued and minted the first dummy digital governmental bond on a blockchain-based platform as an ERC-1155 Security Token using a dedicated decentralized app (dApp) developed leveraging web3 solutions specifically for this proof of concept. The blockchain used for this event was EVM-compatible, enabling potential integration with other blockchain solutions in the future.

The initiative, known as Project Eden, also introduced a digital Payment Token as a fundamental component of the settlement process.

Utilizing smart contracts and the ERC-20 token standard, the Payment Token represented one Israeli Shekel within the Eden ecosystem. During the live day event, the primary dealers securely transferred dummy funds through their digital accounts. The Eden system was constructed in this configuration to facilitate the settlement of security tokens against various digital currencies, potentially including central bank digital currencies (CBDCs).

This aligns with ongoing projects led by central banks worldwide, as they explore the integration of CBDCs into traditional financial systems.

The settlement process was done through 'Atomic Settlement' between the Security Tokens and Payment Tokens, transforming the traditional securities settlement process through the dedicated TASE Bond Management smart contract. The TASE Bond Management smart contract acted as an intermediary between the issuer and the investors, ensuring the verification of valid and approved tokens, preventing inconsistencies or incomplete transfers, and guaranteeing the accurate transfer of tokens.

"By leveraging DLT [distributed ledger technology] and tokenization, financial institutions can enhance efficiency, reduce operational risks, and create new opportunities for investors, thereby transforming traditional financial markets," the TASE statement said.

TASE CEO Ittai Ben Zeev said, "Project Eden is very important for the Tel Aviv Stock Exchange. We believe that the Startup Nation can play a leadership role in the digital transformation of the capital markets. Within TASE we have tremendous technology talent and market structure leadership. We believe that the capital market information will be completely different in a few years, and it is our job to lead the revolution."

Gil Cohen of the Finance Ministry said, "While everyday use of this technology to finance government debt is still in the future, we believe that this demonstration promotes the technological and regulatory discourse by all relevant parties to continue progressing towards a shared goal of improving the accessibility of financial markets for all." (ANI/TPS)