Using Polygon blockchain, Italy's state-owned bank is testing digital bonds

The Italian state-owned bank is leading the way in the deployment of digital bonds on the Polygon blockchain, a major step towards digital transformation.

Using Ethereum (ETH) layer-2 Polygon, Italy's state-owned bank Cassa Depositi e Prestiti ApA announced on July 18, 2024, that it has successfully executed a $27,2 million digital bond issue with trillion-dollar investment bank Intesa Sanpaolo.

According to Intesa Sanpaolo, the transaction was part of a trial by the European Central Bank to find new ways for the central bank to settle wholesale transactions conducted on blockchains. It was the first deal made after Italy's FinTech decree law, which controls the distribution and issue of virtual financial instruments, was passed. This project represents a turning point in the way that decentralized technology and traditional finance interact, possibly changing the course of the financial markets in the future.

With $520 billion in assets, Italy's state-owned bank has started a novel trial of digital bonds. By taking this calculated risk, the company hopes to capitalize on the advantages of blockchain technology, especially the scalability and cheap transaction costs of the Polygon network. The bank aims to improve transparency in the bond market, minimize administrative constraints, and streamline the issuance process by issuing bonds digitally. The 25 million euro (approx $27.2 million) bond issued by Cassa Depositi will mature in four months. 

The bond's annual coupon rate is set at 3.63%. Intesa Sanpaolo was the only institutional investor during the trial period. The cash flow was processed the same day using the Bank of Italy's TIPS Hash Link tool, enabling the integration of blockchain technology and conventional payment systems. Niccolò Bardoscia, the head of Intesa Sanpaolo's digital assets trading and investments, claims that this transaction demonstrates how public blockchains are an effective tool for financial institutions, facilitating quicker and safer transactions. He went on to say that this technology revolution would impact all asset classes in the coming years, not just bonds.