Hong Kong issued its first batch of tokenized green bonds using the Goldman Sachs tokenization platform, GS DAP.

The Hong Kong Monetary Authority announced on February 16 that it has successfully issued HK$800 million in tokenized green bonds. The issuance was settled and delivered through the Central MoneyMarkets Unit (CMU) of the Hong Kong Monetary Authority's debt securities settlement system, and issued in digital form on a private blockchain network using Goldman Sachs' tokenization platform GS DAP.

Goldman Sachs Tokenization Platform GS DAP

Goldman Sachs, the U.S. investment bank, recently announced the official launch of its digital asset platform GS DAP. Developed in collaboration with blockchain software company Digital Asset, the platform utilizes the Daml smart contract language and is built on the privacy-enabled blockchain Canton.

The platform aims to assist clients in achieving end-to-end digital lifecycle processing of tokenized assets, digital currencies, and other financial instruments. In November of last year, Goldman Sachs, along with Santander and Societe Generale, underwrote a €100 million bond issuance for the European Investment Bank (EIB), enabling asset tokenization on a distributed ledger and facilitating atomic settlement, replacing the traditional Delivery vs. Payment (DvP) mechanism that requires simultaneous delivery of securities through another intermediary, completing the process in just 60 seconds compared to the approximately five working days needed for traditional bond issuance.

Tokenization of Green Bonds

The tokenization of green bonds was issued under the Hong Kong government's "Green Bond Framework." Leveraging Goldman Sachs' private blockchain platform GS DAP, the bonds and Hong Kong dollars were tokenized, settled using a T+1 next-day delivery mechanism, and subsequent activities such as interest payments, secondary market trading, and maturity redemptions will be conducted digitally on the private blockchain.

The settlement and delivery of the bonds were processed through the Central Moneymarkets Unit (CMU), a central clearing system under the Hong Kong Monetary Authority (HKMA) that offers services such as securities transfers and collateral management for government bonds and bonds issued by public institutions.

The Chief Executive of the HKMA, Eddie Yue, stated:

Distributed Ledger Technology (DLT) holds great promise and can bring innovation to financial market operations. The HKMA and the Bank for International Settlements Innovation Hub Hong Kong Centre completed Project Genesis in 2021, and the tokenization of green bonds further leverages this project by utilizing the HKMA-issued digital tokens to achieve on-chain DvP settlement, promoting the application of DLT and bringing us closer to fully realizing the potential of DLT in the bond market. The HKMA and the government will use the experience gained from this issuance to collaborate with other stakeholders to introduce more tokenized issuances, aiming to break boundaries and encourage technological applications.

In addition, Hong Kong is actively participating in various central bank digital currency (CBDC) projects led by the Bank for International Settlements (BIS), such as Project Aurum for wholesale CBDC dual-layer models, and collaborating with Thailand, China, and the United Arab Emirates to pilot Project mBridge, which aims to connect CBDCs with the real economy.