DBS launched their first digital bond on the DBS Digital Exchange. Here’s what you need to know about the first security token offering on the exchange.
On 31 May 2021, DBS — the largest bank in Singapore — launched a S$15 million digital bond on the DBS Digital Exchange by private placement. This marks the first Security Token Offering (STO) on the digital exchange.
Here are some details of the DBS digital bond:
- Coupon rate: 0.6% p.a.
- Period: 6 months
- Lot size: S$10,000
Investors can access this digital bond with just S$10,000, a significantly smaller denomination than the investment and trading amounts of traditional wholesale bonds, which are typically in multiples of S$250,000.
Being listed on the DBS Digital Exchange allows secondary trading among the investors that have access to exchange.
What is the DBS Digital Exchange?
The DBS Digital Exchange (DDEx) is a digital exchange that looks to provide institutional and accredited investors access to an ecosystem of asset tokenisation, trading and custody of digital assets. This is done by leveraging blockchain technology to allow issuers to raise funds through asset tokenisation and the secondary listing of their digital assets on a digital exchange.
In summary, the exchange will offer:
- Security Token Offerings (STO): The DBS digital bond is the first STO on the exchange. The DDEx allows the trading of digital tokens that are backed by financial assets, such as shares in unlisted companies, bonds and private equity funds.
- Digital Currency Exchange: Exchange currencies between four fiat currencies (SGD, USD, HDG and JPY) and four of the most established cryptocurrencies (Bitcoin, Ether, Bitcoin Cash and XRP).
- Digital Custodian Services: The DDEx provides custody services for digital assets on behalf of their clients. As of Q1 2021, the DDEx is holding more than S$80 million in digital assets under its custodial services.
The Singapore Exchange (SGX) has a 10% stake in the DDEx, with the aim to help scale and grow Singapore’s capital markets in the digital assets and digital currencies space.
Unfortunately for the average retail investor, the exchange is currently a members-only exchange for institutional investors and accredited investors.
If the exchange is so exclusive, how many investors actually stand to benefit?
Currently, the DDEx currently has more than 120 participants and daily trading volumes have increased 10-fold from the initial week of launch. If you’re not a member, you can still purchase your own investment assets, starting with a brokerage account.
What is a digital token and why offer it?
Digital tokens are virtual tokens that digitally represent, and are smaller fractions of, the original asset. Such assets include bonds, stocks or even real estate. The tokenisation of assets and the transactions pertaining to digital tokens have been made possible by leveraging blockchain technology.
For consumers, tokens make such assets much more accessible and attainable. This is because they’re available in smaller lot sizes.
For the providers of these digital tokens, such as banks, tokenising assets such as bonds allow them to help their consumers diversify their debt instruments. It also opens up the assets to a larger pool of investors.
With the launch of the digital bond, DBS paves the way for other issuers to utilise the DDEx for their funding needs, by offering more tokenised assets on the exchange.
What can we expect next?
We can expect tokenisation of assets to become more mainstream. This has been made possible with the use of blockchain technology. We can already see this taking place on cryptocurrency exchanges where you can purchase tokenised equity in the form of stock tokens.
The digital token offered by DBS is the first step to encouraging more tokenised assets to be listed on the DDEx. With digital tokens, products that traditionally have large lot sizes upwards of S$250,000 (i.e. corporate bonds) can now have a direct issuance in smaller lot sizes on a digital exchange.
More providers could also be following in DBS’s footsteps. For example, in April 2021, HSBC also completed a digital bond issuance on digital asset exchange Marketnode.
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