The digitisation of the capital markets continues to gain momentum. Institutional investors such as banks, brokers and asset managers are faced with the challenge of finding suitable infrastructure partners for their crypto services – for example, for a blockchain-based bond such as the one issued by KfW. As a technological infrastructure partner, Boerse Stuttgart Digital plays an important role in this context.

 

DLT-based capital market continues to gain momentum

DLT-based capital markets (distributed ledger technology) are based on all technologies that store data in a decentralised manner. This also includes the much-cited blockchain. This enables the digital mapping and processing of financial instruments – such as bonds. While traditional bond issuances tend to be characterised by lengthy processes, blockchain-based securities offer decisive advantages:

 

• Faster settlement: By leveraging smart contracts, transactions can take place in near real-time.
• Transparency & Security: All transactions are stored on an immutable blockchain, which almost eliminates manipulation.
• Increased efficiency: Fewer intermediaries mean lower costs and a leaner infrastructure. 

 

This market with cryptocurrencies and digital assets is actively developed by Boerse Stuttgart Digital. KfW (“Kreditanstalt für Wiederaufbau”, a German financial institute) is also participating in the transition to a DLT-based capital market. Specifically, the bank issued a first blockchain-based bond (MVP 1.0) in 2024, followed by a second digital bond (MVP 2.0), which sets new standards.

An innovative solution is used: settlement is conducted using a delivery-versus-payment (DvP) mechanism in exchange for central bank money, a technology that is being tested in cooperation with the European Central Bank (ECB).

 

Boerse Stuttgart Digital provides wallet and private key management

As one of the leading infrastructure providers for digital assets in Europe, Boerse Stuttgart Digital is also involved in this project. It takes on two important aspects: 

• the wallet management for KfW 
• the safekeeping of private keys in the issuance and redemption process

"The expansion of our offering for institutional clients and our involvement in KfW's next blockchain-based digital bond mark a milestone in the digital transformation of the financial sector," emphasises Dr Ulli Spankowski, Managing Director of Boerse Stuttgart Digital.

KfW also welcomes the cooperation, as Gaetano Panno, Head of Transaction Management, emphasises: "As one of the world's largest and most active bond issuers, we are actively driving digitalisation initiatives in the issuing and settlement process. The utilisation of new technologies as part of the ECB trials enables us to technically process a "delivery vs. payment" transaction and thus supports our digital learning journey. We are pleased that Boerse Stuttgart Digital is paving the way for a future of blockchain-based securities together with KfW. As a fully regulated provider Boerse Stuttgart Digital is a trusted partner for our upcoming transaction."

 

KfW transaction as a practical test for the scalability of digital capital market instruments

In this context, KfW, together with KPMG, examined the use of DLT systems in the capital market in general and, in particular, the introduction and implementation of the blockchain-based digital bond held by Boerse Stuttgart Digital in a recently published study.

This white paper analyses the maturity of the DLT-based capital market based on the experience gained from the practical test with KfW's two crypto securities issues. The digital bond will be settled using the Deutsche Bundesbank's "Trigger Solution", which enables secure and regulatory-compliant handling of DLT-based central bank money. 

This is a crucial step towards a fully digitalised financial market where: 

• Trading, settlement and custody run seamlessly on one infrastructure,
• Banks, brokers and asset managers can participate more easily in tokenised securities markets,
• regulations and technological standards for digital assets are further developed.

 

Tokenised securities offer opportunities for institutional investors

The developments in the field of tokenised securities have far-reaching consequences for the financial industry. Institutional investors who get to grips with this technology early on can gain significant competitive advantages.

The advantages over traditional securities include faster processing through a reduction in settlement periods, cost savings due to fewer intermediaries, improved market liquidity and now also regulatory security, which is ensured by MiCAR-licensed partners such as Boerse Stuttgart Digital.

As Europe's leading infrastructure partner in the field of cryptocurrencies and digital assets, Boerse Stuttgart Digital offers institutional clients a secure, regulated and fully integrated solution for blockchain-based financial products – today and in the future. If you too are interested in the one-stop-shop solution, we look forward to hearing from you.