Santander, LeasePlan Testing Nivaura's Blockchain-Based Floating Rate Bond

Capital markets startup Nivaura has developed what it's calling "The first commercially viable floating rate bond using blockchain technology," and the new instrument is now being tested by banking giant Santander and LeasePlan, the vehicle leasing company.

Announced to coincide with CoinDesk's Consensus 2019 in New York, Nivaura said other clients working on its floating rate notes include the London Stock Exchange Group and Premfina, a growth-stage premium financing service provider in the insurance industry.

"Some of the key clients that we are working with on the novel aspects around FRNs and tokenized registers are LSEG, Santander and LeasePlan."

Back in 2016, Nivaura executed a reinsurance instrument which managed a register of noteholders using an on-chain token allocation system, while also creating a "Calculation and paying agent" smart contract on ethereum.

FRNs are calculated according to current market rates, such as the federal funds rate or the London Inter-bank Offered Rate, plus a quoted spread. Sehra said the FRN project is a useful extension of the work his team has done to tokenize equity, and for that to then be transferable on a regulated exchange.

"We are extending the simple tokenized equity and bond models to include more interesting hybrid and structured instruments that would be more useful for our clients and partners," Sehra said.

The first is the token register that creates the financial instrument on a blockchain like ethereum, and allows for the transfer of tokens from one party to another, in accordance with a KYC/AML whitelisting process.

As instruments become more complex the number of events and information required to manage the events becomes more nuanced and complex, too.

In the case of FRNs, it involves managing the data feeds, making a calculation, generating payment amounts and then executing those payments through a smart contract on a blockchain.

"Just like the token register model requires whitelisting and accountable end-points to ensure decentralized registers can be used for securities, event management on a blockchain will also require endpoint checks and sign off by trusted parties before capital markets participants will even contemplate using it."