Siemens to use Polygon blockchain
Siemens, the German technology giant, has made an agreement with Polygon. Now the electrical conglomerate will issue its bonds on blockchain.
DLT: A necessity indeed?
A digital bond is a financial instrument with ownership rights secured through the use of distributed ledger technology (DLT).
DLT bonds are held & traded via blockchain, i.e., outside the traditional market infrastructure. Further, it is also referred to as a “proprietary digital asset,” “security token,” or “tokenized bond”.
In the world of bureaucracy, the bond is drafted, signed, and sealed by the surety or broker. Afterwards, the bond is sent to the intermediary agent (principal) to be signed a second time. Only then will the document be delivered to the purchaser of the financial asset. The entire process takes 3 to 10 working days.
Blockchain-based bond issuance involves whatever is done in the physical world, but via an online system straight to the issuer's desktop. No paper, stamps, or couriers are used. On top of that, the blockchain provides security and integrity guarantees for end-users.
DLT assets are more reliable and easier to verify than paper ones. It concerns both ownership rights and trivial typos. Erroneously filed papers would simply not pass the registration process. A smart contract will not be executed if an execution error occurs.
Thus, the benefits of issuing their securities on blockchain are obvious for a large bond holder, such as Siemens. Indeed, the digital counterparts of bonds, stocks and bills significantly reduce both the paperwork and the time it takes to issue them.
Why Siemens opted for Polygon blockchain
According to data for the year 2022, Siemens is the third largest company in Germany in terms of market capitalization. It ranks 159th in the world in terms of asset value. The conglomerate has long been experimenting with blockchain capabilities and has even created its own department that helps clients develop business cases for digitizing their businesses.
In December 2021, Siemens worked with JPMorgan Chase on developing a blockchain-based payment system. At the time, Siemens representatives stated that blockchain was necessary for processing a larger volume of payments between Siemens' corporate accounts. Initially, the system was used only for US dollars, but now it also supports transfers in euros. There are plans to add other currencies as well.
Polygon has long strived to become a provider of blockchain services for major brands. Most enterprises use the Polygon blockchain to create platforms for token trading or NFT-related applications. However, the developers do not want to limit the functional capabilities of the network to work with non-fungible tokens and are attracting major market players with the opportunity to create DeFi applications and tokenize assets through smart contracts.
Dozens of global companies have already entered into partnership agreements with Polygon:
- Coca-Cola
- Starbucks
- Adobe
- Adidas
- Disney
- Meta
Siemens has now joined the list of about a dozen global companies who have partnered with Polygon.
The €60 million bond issued on the Polygon blockchain has a maturity of one year, and the company has not disclosed the interest rate. Siemens officials emphasize that the value of blockchain comes from the fact that a bond can be sold directly to investors. In other words, there is no need for intermediary services from a bank.
The tokenized bond was issued in compliance with Germany's digital securities legislation, which was adopted in 2021. Therefore, there can be no objections from regulators.
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