The State of Israel made history with the world’s first digital bond ever issued. The Tel Aviv Stock Exchange (TASE) and the office of the Accountant General at Israel’s Ministry of Finance together completed the “successful the Proof of Concept (PoC) phase” for Project Eden, what they call a “groundbreaking collaboration showcasing the immense potential of innovative technologies such as DLT, smart contracts, and tokenization in reducing risk and improving efficiency and transparency in the financial markets.”
This should not be confused with cryptocurrencies which have no real value and are not tangible assets. This type of bond may be digital, but it is still backed in the same way as any other government issued bond. The risks are related to the issuing nation’s political and financial stability.
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This is yet another first for Israeli bonds. In January, Israel successfully completed its first issuing of $2 billion in “Green Bonds” which were issued for the funding of projects that deal with climate change. In doing so, the State of Israel joined 24 countries in the world that have issued similar bonds. The 10-year US Dollar-denominated green bonds sold at a margin of 95 basis points above the US government bond yield for a similar term.
As for the new “digital bonds,” last week Israel’s 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 PoC. The blockchain used for this PoC was EVM-compatible, enabling potential integration with other blockchain solutions in the future.
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.
Project Eden is a unique project led by TASE in close partnership with the Israeli Ministry of Finance. The collaborative team said that it has dedicated substantial effort and expertise to examine the application of blockchain infrastructure in the issuance and settlement of digital government bonds.
At the time, Israel’s government described the sale of the green bonds (not called that because USD are green) as a “historic milestone” in its activities to achieve the climate goals set to reduce emissions created from government related activities.
Yali Rothenberg, The Accountant General, Ministry of Finance, said that her office places “great emphasis on the use of advanced technologies to improve the functionality of financial markets, and to provide better services to businesses and citizens alike.”
She added that 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.”
