Digital bonds surged 260% in 2024, hit €3 billion: Report

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Digital bonds issued on distributed ledger technology (DLT) surged 260% in 2024 to hit €3 billion ($3.14 billion), a new report has revealed.

The Distributed Ledger Technology (DLT) Capital Market report found that the highest growth was in Europe and Asia, which have dominated the digital bonds market for the past few years. European entities were the worldwide leaders, issuing €1.7 billion ($1.77 billion) worth of bonds on DLT, with Asia contributing €1.1 billion ($1.15 billion).

The report, published by the Association for Financial Markets in Europe (AFME), cited the European Central Bank (ECB) and the Swiss National Bank (SNB) as two of the most important players. The two were involved in DLT trials that issued €1.8 billion ($1.88 billion) worth of digital bonds, although some of the trials the ECB participated in involved American entities.

Among the notable issuances in Europe were a €105 million ($109 million) digital bond by the European Investment Bank and a €100 million issuance by France’s state-owned lender Caisse des Dépôts, which both debuted in November. Both utilized a wholesale central bank digital currency (wCBDC) and were issued by the French central bank through its D3LS platform, with which it integrates wCBDC with existing payment rails.

Germany’s development bank KfW and fellow German lender WIBank also had notable issuances. Even governments jumped in too, with Slovenia issuing its first digital bond in August while the Swiss city of Lugano settled a $114 million CBDC-linked bond earlier in the year.

“Although the adoption of DLT in capital markets is currently limited relative to the size of the global market, its recent rapid growth and the emergence of new market participants and product offerings present substantial opportunities for future expansion,” commented Julio Suarez, the head of research at the AFME.

Asia has also been increasingly active in the digital bonds market, with Hong Kong having a commanding lead over other jurisdictions. In particular, HSBC (NASDAQ: HSBC) has dominated the Asian market, with its Orion blockchain platform anchoring dozens of issuances from some notable players in and beyond Hong Kong.

The latest Asian giant to explore a digital bond is Toyota (NASDAQ: TM).

Toyota targets customer engagement with March digital bond

Toyota Financial Services, the financial arm of the Japanese automotive giant, is set to issue a digital bond in March. The bond is the company’s second; the first was by Toyota Leasing in Thailand in 2020, worth $16.4 million but exclusively targeting accredited investors.

The upcoming digital bond will be accessible to professional and retail investors, reports local outlet CoinPost. It will be an unsecured security token bond worth one billion yen ($6.5 million) with a one-year maturity.

The automaker will issue the bond on Progmat, a DLT platform founded by Japan’s largest bank, MUFG (NASDAQ: MUFG). Progmat has become the country’s premier tokenization platform, with some of its members including the Japan Exchange Group and the other two largest banks—Mizuho (NASDAQ: MFG) and Sumitomo Mitsui (NASDAQ: SMFG).

MUFG will act as the bond administrator, while Daiwa Securities (NASDAQ: DSECF) will be the sole underwriter.

Toyota has structured the bond to target retail investors, and since it’s a relatively smaller bond, it’s conceivably more of an attempt to engage the company’s customers than a fundraising drive. The firm also pledged bonuses to customers who purchase the bonds using Toyota Wallet, a service that lets customers make payments using their smartphones.

The DLT bond debate

The AFME report sparked an ongoing debate about the scope of DLT bonds. The Association only considered bonds whose issuances didn’t involve a central securities depository (CSD), ignoring whether DLT was used in other aspects.

For instance, in June last year, Germany’s KfW Bank issued a €4 billion ($4.28 billion) digital bond on Clearstream, a post-trade platform owned by Deutsche Borse (NASDAQ: DBOEF). The bond relied on a centralized ledger for the issuance, although it tapped DLT and smart contracts for aspects such as settlement. KfW followed this up with another €4.5 billion ($4.7 billion) digital bond on Clearstream. Last month, the bank issued €9 billion ($9. 4 billion) in digital bonds on the same platform.

The AFME didn’t consider these bonds in its report as they rely on a centralized ledger.

Still, AFME projects the sector will grow steadily over the next few years.

“Undoubtedly, the DLT-based issuance of securities will continue to grow over time, and we are pleased to be the first association in Europe to regularly produce data on this growing asset class,” commented Suarez.

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