The Bank of Canada completed a test to see how tokenised securities could be moved through the financial system using Blockchain infrastructure.
Export Development Canada issued a short-term security that was the focus of this project, which involved some of Canada’s biggest financial institutions.
This test examined how the distributed ledger could be used to support bond creation, trade, and settlement within one digital environment.
Project Samara was the name of the project, which examined whether the financial markets were able to handle the entire lifecycle of an bond transaction using blockchain technology.
This experiment combined digital settlement funds from the central bank with tokenised securities, which allowed both assets to be moved through the same ledger.
The controlled testing environment was used by officials to determine if blockchain platforms can replicate the processes which are traditionally performed across multiple financial markets systems.
Project Samara trial
The Project Samara is a collaboration of several major Canadian financial institutions.
RBC Dominion Securities (formerly RBC Investor Services Trust) and TD Securities were involved in the initiative.
Export Development Canada, as part of its test program, issued a C$100,000,000 security that matured in less than 3 months.
The bond was only sold to investors who were part of the closed trial group.
It was a test to see if distributed ledgers could handle processes that are normally managed by several financial market intermediaries.
The lifecycle of tokenised bonds
RBC operated the blockchain platform that was used for this project.
A single ledger supported the whole life cycle of the bonds transaction.
Security was directly issued in tokenised format, which allowed participants to bid and buy the bond using the same infrastructure.
The platform allows for the payment of coupons and redemption of bonds at maturity.
The same system allowed participants to also trade bonds on secondary markets.
The trial allowed for the testing of how asset service, trading and settlement functions can operate in a distributed ledger system.
Digital settlement system
This experiment tested the ability of payments to be made through a blockchain-based platform.
The Bank of Canada tokenised wholesale Canadian dollars for settlement.
The digital fund is recorded on the same ledger with the bond.
The platform allowed for trades to be settled directly on the platform, rather than having them rely on a separate payment system.
The project tested whether it was possible to process and complete transactions using a single Blockchain infrastructure by keeping securities and settlements assets in one place.
Regulations
This experiment is being conducted as Canadian authorities develop regulatory frameworks to regulate digital assets.
The federal budget for November signaled that the government intends to pass legislation on stablecoins backed by Canadian dollars.
Bank of Canada is expected to be involved in the oversight process and will focus on such areas as reserve backing rules, redemption rules and risk management requirements.
Canada also took steps to improve oversight of the digital asset infrastructure.
The Canadian Investment Regulatory Organization (CIRO) introduced a framework for digital asset custodianship last month to improve how trading platforms hold crypto assets.
This framework was designed to improve custody standards, reduce risk, such as fraud and hacking and prevent insolvency after failures within the digital assets sector.
The ICD published the following article: Bank of Canada Tests Tokenized Bonds on Blockchain in Project Samara.
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