Global: How Digital Bonds Could Reshape Debt Markets and Lower Borrowing Costs

The introduction of government-issued blockchain-based bonds, known as digital gilts, could transform global debt markets by reducing borrowing costs and enabling new trading strategies.

In a recent interview with Cointelegraph, Lamine Brahimi, co-founder and managing partner of digital asset infrastructure firm Taurus, shared insights on how digital bonds might reshape debt markets. According to Brahimi, blockchain-based government bonds have the potential to improve market efficiency, cut costs, and introduce innovative trading opportunities.

“Digital gilts could drastically reduce settlement risk, allowing for more flexible intraday trading of government debt,” Brahimi said. “This shift could open up new strategies for issuers and investors alike, while reduced counterparty risk would ultimately lower borrowing costs for governments.”

Settlement Efficiency

Brahimi highlighted that digital gilts could streamline government debt transactions with near-instant settlement on the blockchain, creating a real-time, immutable record of all transactions. “This could enhance transparency, bolster regulatory oversight, and reduce the risk of market manipulation,” he noted. Traditional government bonds typically require multiple intermediaries to handle settlement, adding delays and costs. A blockchain-based approach could minimize these hurdles, reducing the associated expenses and making the market more efficient.

Regulatory Challenges

While the cost-saving benefits are compelling, Brahimi pointed out that integrating digital gilts into current market infrastructure presents challenges. “A major concern is the risk of market fragmentation if digital gilts exist alongside traditional ones, possibly affecting price discovery and liquidity,” he explained. He added that regulatory updates would be crucial for stability, as local securities laws may need to be revised to fully recognize blockchain-based securities.

Support for Digital Gilts in the UK

In the United Kingdom, City Minister Tulip Siddiq recently voiced support for blockchain-based gilts, despite concerns from the Debt Management Office (DMO) about technical and legal obstacles. Proponents of digital gilts argue that leveraging blockchain technology could modernize the UK debt market, enabling greater transparency and efficiency in government bond issuance.