The financial sector around the world is currently exploring blockchain technology, which registers permanent records of transactions and reduces dependencies on centralized and easily hacked Web2 servers. Germany’s third largest state-owned bank, Kreditanstalt fuer Wiederaufbau (KfW) has decided to join the global list of lenders experimenting with blockchain. In the coming days, KfW plans to launch its first blockchain-based digital bond. In this way, it will not only engage with the blockchain itself, but also participate in driving the adoption of its technology.

The first tokenized bond that KfW is preparing to issue has been characterized as a “crypto security” by the bank.

“With the planned issuance of our first crypto security in accordance with the German Electronic Securities Act, we are once again testing an innovation in the financial market and aim to pave the way for future transactions of this type for other market participants,” Melanie Kerr, member of the Executive Board of the KfW Group said in an official blog post.

In finance, a bond is a debt obligation where one party lends money to another party in exchange for interest payments and the return of principal when the bond matures. To tokenize a bond essentially means that a virtual representation of that bond is stamped onto the blockchain to verify transaction history and ownership.

When a bond is tokenized, this leads to multiple benefits, including the automation of several aspects of bond management. These aspects include interest payments and maturities. In addition, bond tokenization reduces the requirement for middlemen or intermediaries at each step – leading to a significant reduction in the processing costs of the overall process.

“We are now taking the next big step with the issuance of a blockchain-based bond for which we want to attract as many investors as possible. The initial goal is to learn and thereby identify potential for improvement. We believe digitization will be beneficial in terms of increased efficiency and scalability,” said Tim Armbruster, treasurer at KfW, commenting on the development.

In the near future, KfW will hold a dialogue with institutional investors based in Europe. This process is scheduled to last for weeks and aims to understand what investors want and get them to understand the different ways blockchain can be used to innovate fintech. Frankfurt-based fintech company Cashlink Technologies GmbH will act as crypto securities registrar for KfW.

It is the first major bank in Germany to decide to take a pro-Web3 step. Previously, Germany’s Lufthansa Airlines and the intelligence department BND made decisions in support of Web3.

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