On August 27th, the Hong Kong Monetary Authority (HKMA) officially launched the Evergreen project – issuing 800 million Hong Kong dollars in tokenized bonds using distributed ledger technology (DLT).
According to HKMA, the Evergreen project will “significantly improve” bond market operations while eliminating the inefficiencies present in traditional financial systems.
It’s worth noting that the conclusions from the Project Evergreen report reveal that traditional bond issuance is a complex process that requires multiple organizations to interact with various systems for issuance, settlement, and repurchase. This process is slow and prone to errors. Therefore, the issuing authority often takes a considerable amount of time to ensure accuracy.
In contrast, digital bonds issued through DLT simplify this complexity by “bringing together all parties onto a common platform,” thereby enhancing overall efficiency.
Furthermore, HKMA added that DLT provides a “unique and immutable source” for bonds, essentially creating a consistent record and preventing counterfeiting. Particularly, DLT enables instant settlement, reducing significant risks and hidden delays, while enhancing liquidity and transparency.
However, the process of tokenizing traditional financial assets like bonds is still in its “early stage,” and widespread adoption is hindered by various obstacles, such as the lack of interoperability between DLT platforms and traditional financial systems.
“Despite the increasing number of issuances globally in recent years, the tokenization of bonds is still in its infancy; many challenges need to be overcome for it to be widely adopted.”
Eddie Yue Wai-man, Chief Executive of HKMA
In conclusion, HKMA emphasized that many established processes still need to be revamped to align with the digitization of financial assets. Additionally, legal frameworks and regulations need to be “fine-tuned.”