The finance sector around the world, at this point, is exploring the blockchain technology that logs permanent transaction records and reduces the dependencies on centralised and easily hackable Web2 servers. Germany’s third largest state-owned bank, Kreditanstalt fuer Wiederaufbau (KfW) has decided to join the global list of lenders that are experimenting with blockchain. In the coming days, KfW has planned to launch its first ever blockchain-based digital bond. This way, not only will it engage with blockchain itself but will also participate in driving the adoption of his technology.

The first tokenised bond that KfW is gearing to issue, is being characterised as a ‘crypto security’ by the bank.

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

In finance, a bond is a debt obligation where one party lends the money to another party in exchange for interest payments and the return of the principal amount upon the maturity of the bond. To tokenise a bond, it essentially means that a virtual representation of this bond is embossed on a blockchain to have its transactional history and ownership validated.

When a bond is tokenised, it entails a plethora of benefits including the automation of several aspects of bond management. These aspects include interest payments and maturity settlements. In addition, tokenising the bond reduces the requirement of middlemen or intermediaries on each step – which brings a significant drop to the cost of handling 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 identifying potential for improvement. We believe that digitalisation will be advantageous in terms of increased efficiency and scalability,” said Tim Armbruster, Treasurer at KfW commenting on the development.

In the near future, the KfW will be conducting dialogues with institutional investors based in Europe. This process is slated to go on for weeks and is aimed at understanding what the investors want and making them understand the different ways blockchain can be leveraged for a fintech revamp. Frankfurt-based fintech Cashlink Technologies GmbH will act as the crypto securities registrar for KfW.

This is the first major bank in Germany that has decided to take a pro-Web3 step. Prior to this, Germany’s Lufthansa Airlines and intelligence unit BND have taken pro-Web3 decisions.