Bond.One Aims to Bring Blockchain to Bond Trading

Bond.One wants to unite the old and the new by putting the debt capital markets on the blockchain using Microsoft’s Azure Blockchain service.

New York-based Bond.One is the second venture to spin out of cVation, a software development firm with experience in deploying cloud-based enterprise technology across three industries.

“Our expertise is navigating very regulated environments, being financial services, being aviation, being insurance, and Microsoft as an enterprise technology solution generally has existing relationships with the firms that we work with,” says John Mizzi, Bond.One’s chief strategy officer. “That was the initial leverage point, but from a functionality perspective, Microsoft has supported our development effort, and allowed us to be extremely efficient at how we build and implement our solutions for our clients.”

Bond.One was one of a handful of companies allowed to test Azure in its beta stage over the last five months, and the Microsoft platform has allowed the company to build and implement solutions that can solve issues with fragmented market structure and inconsistent data sets in the fixed income markets, says Mizzi.

“Without a consistent data set and with the fragmented market structure, you then have a variety of different systems and integration points and a lack of connectivity between counterparties that are transacting with each other. That translates into house transaction costs, back-office processing that is not necessarily efficient or straightforward,” says Mizzi. “So we’ve focused on building technology solutions that create opportunities for automation and for straight-through processing, and for business efficiency, that generally have been difficult to find within the space.”

Mizzi added that the traditional market structure for fixed income and bond markets is one that sits far behind the level of equities, which the introduction of blockchain could change.

“As of 2017, 70% of fixed income volume traded not even digitally, but telephonically,” says Mizzi. “I would call my financial adviser; I would call my broker, basically offer it up for sale. Then there are between seven to 10 intermediaries that sit between you and I, and each one of those intermediaries keeps their records, or their ledger if you will, that is the official testament in terms of who owns a security, what information is being processed, in the context of bond settlement or transaction settlement process.”

These middlemen would still need to play their roles, but they could do so by accessing and working off a consolidated source, and buyers and sellers would see settlement times slashed from a minimum of 48 hours to clear a trade to less than one day, he added.

Still, the actual development hasn’t been easy. When Bond.One set out, it began building on Ethereum Mainnet before having to reroute to Quorum, the blockchain protocol developed by JP Morgan when it encountered three problems: Unpredictable fees, long queues and encrypted, anonymous identities.

“We’re operating in the most regulated marketplace in the world, like financial securities, so you do need some control over account information, and you do need to know who you’re transacting with,” says Mizzi. “The throughput issue is solved for because we have the entire Microsoft Azure cloud, which provides a very scalable infrastructure. The transaction costs are controlled because we’re just paying Microsoft for data processing on their traditional cloud business model.”

Bond.One is preparing to execute its first bond offering by the end of May and is in talks to partner with other diversified financial institutions to help them develop their distributed-ledger technology in tandem with their existing systems by next year.

“The reality is, they want infrastructure in place so that if and when the regulators and the blockchain community, in terms of technical development, evolve and become more a long-term play, they’re ready to hit go, and they understand the impact of this technology,” says Mizzi.