In brief
In less than half a month, the $3 billion ERC20 bond that CCB acted as issuing consultant has been canceled.
According to the interviewees, the reason for withdrawal may be directly related to whether Bitcoin has monetary properties or not, or the way that the digital bond is issued, so if there are any subsequent problems, and the relevant system is not clear, there will be a lack of guarantee for disposal.
Recently, The Fusang Exchange has announced that the issuance of Ethereum-based digital bonds sponsored by China Construction Bank Limited, Labuan Branch (CCBL) has been canceled and the listing of the bonds has been suspended.
Just a few days ago, the Fusang exchange revealed that it would list this digital bond on November 13, which would be quoted and traded in both U.S. dollars and bitcoin, in order to raise up to $3 billion.
Why canceled?
On November 26, the reporter of International Financial News interviewed relevant people from CCB, but they had no comment on this.
Gao Chengshi, a member of the Blockchain Committee of the China Computer Society, pointed out to us that there are two reasons for this cancel: first, it is directly related to whether bitcoin has monetary properties; second, “it should be related to the issuance method of the digital bond, if there are any problems in the issuance and transaction processes, and if the relevant system is not clear, there will be a lack of corresponding institutional guarantee for the disposal.”
The Original $3 billion digital bond
The Fusang exchange disclosed on Nov. 11 that it will launch a CCBL-sponsored blockchain-based Ethereum digital bond on Nov. 13, which will be quoted and traded in U.S. dollars and bitcoin at $99.797, with a total of 140,000 digital tokens to be issued to raise up to $3 billion.
The product, named “Longbond SR Notes USD Feb 2021”, will be listed on the Fusang Exchange in the form of an ERC 20 digital token with the symbol “LBFEB21” and will be available to both retail and senior investors.
The digital bond would start at $100 for foreign investors, which would be rolled over quarterly. The annualized interest rate paid is Libor plus 50 basis points, or about 0.75 percent at current levels. The proceeds of the offering would be deposited into CCBL with a time deposit maturing in February 2021.
This is a blockchain-based offshore bond in the form of a digital token that will be traded as a securitization, where the investor buys a note issued by a financial instrument and the proceeds will be deposited into the CCBL as a deposit, as disclosed by the Fusang Exchange.
The digital bond would be listed on the Fusang Exchange, which accepts bitcoins as payment and will convert the bitcoins received into U.S. dollars for investors to purchase. According to Fusang’s website, the exchange is the first fully operational stock exchange in Asia, allowing companies to go public through digital IPO and supporting trading in digital securities and cryptocurrencies.
Lianxian Li, the chief researcher of OKchain Research Institute, told the IFnews that issuing blockchain-based digital bonds is of great significance to the blockchain industry and the financial industry.
First, the issuance of bonds based on blockchain technology can use smart contracts to automate bond underwriting, simplify the process, save time and labor costs, and improve efficiency; second, the openness and transparency of blockchain technology can bring auditability to bond issuance; at the same time, the traceability, openness and transparency of blockchain technology enhance the penetration and effectiveness of regulation.
Withdrawal announced in less than half a month
The original plan was for the digital bond to go live on the stock exchange on November 13, 2020 at 12 AM Malaysia time. However, a statement released by CCBL on November 12 cast a shadow over the issuance plans.
In the statement, CCBL emphasized three points: first, CCBL is not the issuer of the bonds; second, CCBL’s role is to act as lead arranger and listing advisor of the bonds and as a facility agent to facilitate settlement of the bonds in U.S. dollars; and third, CCBL does not accept cryptocurrencies, including bitcoin for settlement.
On November 16, the Fusang Exchange sent a formal letter to the listing sponsor inquiring about the reasons for the delay and requesting an updated listing schedule. However, the listing sponsor replied on November 20, stating that it “decided not to proceed. “
Finally, on November 23, the Fusang Exchange officially announced the cancellation. Currently, it has started returning all investors’ funds.
In fact, according to the parties’ statements, the blockchain bond initiated by CCBL is not directly traded in bitcoin in nature. Regardless of whether a user purchases the bond in U.S. dollars or bitcoin, the bond is not settled directly in bitcoin; the Fusang exchange also converts the investor’s bitcoin into U.S. dollars before purchasing the bond tokens.
However, in the opinion of industry insiders, if the bonds can be purchased with bitcoin, it is acknowledging that bitcoin has monetary properties and allows bitcoin to be traded in the market. If domestic banks launch bonds outside of China that can be purchased with bitcoin, it will become a kind of playing the touch ball of bitcoin transactions.
Why?
CCB did not comment on the cancellation of its $3bn digital bond issue.
Gao pointed out that the CCBL statement did not deny a previous announcement by the Fusang exchange that the digital bond could be “traded in US dollars or bitcoin”. CCBL was involved as the lead arranger of the bond, which directly conflicts with the characterization of Bitcoin and related digital cryptocurrencies by the People’s Bank of China and related ministries.
As early as 2013, CBIRC, CSRC, PBoC and MIIT jointly issued the Notice on the Prevention of Bitcoin Risks, which stipulates that Bitcoin is a “specific virtual commodity” that cannot and should not be used as currency in the market, nor can it convert value with RMB.
CCB also had issued an announcement in April 2014 stating that CCB accounts shall not be used for the recharge of transaction funds, withdrawal, purchase and sale of relevant transaction recharge codes for Bitcoin and Litecoin, etc., and shall not transfer the relevant transaction funds.
Gao also pointed out that Ethereum has never been recognized at the legal and institutional levels in China, let alone recognized by the financial administration as a bond issuance channel. “If the bond is issued on Ethereum, on the one hand, it shows that the financial regulator has recognized the compliance status of Ethereum in the financial sector to some extent, but on the other hand, if there are any problems in the subsequent issuance and trading processes, and the relevant system is unclear, the disposal will lack the corresponding institutional guarantee.”
Kang Luzhi, a senior researcher at Huobi, pointed out to the reporter that the suspension of CCB’s digital bond issuance may be due to problems in the promotion process. “Fusang Exchange unilaterally exaggerated CCB’s role in the project and over-exaggerated the announcement. From CCB’s later clarifications, it appears that CCB was not deeply involved in the issuance of the bonds. Therefore, it is possible that Fusang Exchange’s announcement affected CCB’s regulatory compliance and ultimately caused the project’s failure”.
Li Lianxian pointed out that CCB’s original intention of issuing this bond should be to respond to the spirit of last year’s “1024 Conference” by issuing digital bonds based on blockchain technology to realize financial innovation and the application of blockchain technology on the ground. However, the focus of the market is on “the blockchain bonds issued by CCB can be purchased with Bitcoin”.
“Although after the incident caused a lot of controversies, CCBL made an announcement. But the announcement did little to dispel regulatory and public concerns, after all, the funds raised would eventually become CCBL’s deposits, and CCBL is still a stakeholder.” Li said, “at the same time, since November this year, China’s financial regulatory policies have emphasized ‘unswervingly fighting to prevent and defuse financial risks’ and strengthened supervision of the fintech sector. At this time, it is no longer appropriate to strongly promote ‘blockchain bonds that can be purchased with Bitcoin’ ”.
Article from Yu Jichao (IFnews)
Translated by Yang (Mengyan Finance)