China Construction Bank uses the first blockchain-based digital security

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China Construction Bank has partnered with a Hong Kong-based fintech to use the first blockchain-based digital security issued by a Chinese financial institution.
It is one of the “Big Four” banks in the People’s Republic of China and is ranked the second largest bank globally by total assets as of fall 2020.
The megabank’s new blockchain-based debt issuance aims to raise up to $3 billion in total, starting with a tranche of $58 million, from people and institutions. The digital security will be issued through an offshore branch of China Construction Bank in Labuan, Malaysia, at a minimum of as little as $100 each, and will have a tenor of three months. They pay an annualized interest of Libor plus 50 basis points, or 0.75%.
The innovation is that these bonds are being used as tokenized certificates of deposit on the blockchain, that supports the issuance of such small-sum bonds; non-blockchain-based bonds are normally sold at higher minimums, and so they are limited to professional investors or other banks.
Additionally, the tokenized certificates of deposit will be tradeable on the Fusan exchange. The exchange, which is regulated in Labuan, will launch live trading of the bonds on Nov. 13. As Fusan supports cryptocurrency trading, traders can exchange Bitcoin (BTC) for USD in order to buy the bonds. The transactions will be charged at a commission.
Fusang’s CEO Henry Chong has announced that if the bonds are popular, the digital exchange plans to initiate similar products denominated in other currencies. The bonds’ 0.75% annualized interest is higher than most USD bank-deposit rates, as the Wall Street Journal has emphasized.
Tax residents of the United States and China, as well as entities or persons in Iran and North Korea, cannot purchase the digital security. All proceeds from the issuance will be deposited at the CCB’s offshore Labuan branch. Labuan is a small island, and is described by the WSJ as a tax haven.
CCB is “not dealing in bitcoin or cryptocurrencies,” but rather, “taking bank deposits, which is our core business,” CCB Malaysia’s COO Steven Wong has emphasized. The offering is nonetheless being heralded as a big innovation. This is “the first publicly listed debt security on a blockchain,” said Felix Feng Qi, the CEO of CCB’s offshore Malaysian business and principal officer of the CCB Labuan branch.

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