Blockchain for Green Bonds and Circular Communities

[Music] hello and welcome to everyone i hope you excited for the next panel discussion on green bonds and secret economies communities we have marcus david marcel and eva kylie on her way i'm now going to give the word to marcus enjoy the panel discussion and please share the questions you may have in the chat box thank you thank you very much hi everybody and thank you victoria for having me and for your team it's really great so as you mentioned who is here on the panel so i'm very honored to be a part of this of this panel and so we have here um iva kylie who is a member of european parliament marcel bloom from the bank of international settlements and david crea from the gft group um before we actually start into this i have a small announcement to make um it's a little bit of a housekeeping or let's say it's compliance related so um basically right now i'm here on a private um function i'm not uh representing the eap group and hence um any views or opinions that i might express here they're not the user opinions of the eab group or any of the uh my fellow members of my fellow staff members um so yeah that's a little bit over the housekeeping um and that was a little bit of a mouthful to be honest but let's let's see um another thing maybe victoria uh i don't know if you on the housekeeping side you could perhaps give a little hint uh when we get like uh 30 minutes left 15 minutes left uh five minutes left or so so that we don't uh go too long okay great perfect um so that that's about that on the housekeeping side um maybe we can you could uh briefly introduce yourself so maybe we start with um david and then marcel and then whenever joins she can also give a brief introduction about yourself how about that perfect so i'm i'm david crayer um i head up the uh the dlt and crypto practice here at gft group rather than introducing myself i'll maybe introduce gft a little bit gft are a multinational technology services provider and we specialize in innovation uh delivery services um we've done a lot in in the dltm blockchain space uh we've been active since 2014 we've done over 30 projects um have a lot in production a lot out of production and um we uh uh i suppose we're headquartered in in germany and stuttgart um and we have about 8 000 people around 42 different locations worldwide and so more than an introduction to me which i think uh you can find the linkedin introductions gft great great okay let's hand over the word to marcel and please all right good evening uh good afternoon i'm marcel bloom i work at the bis innovation hub in hong kong as an advisor and thank you very much for having me here and i would also like to add a similar disclaimer as marcus so i'm here in a private capacity and my views are not necessarily those of the bis or the bis innovation app okay good stuff i believe eva joined now as well is that correct oh hello hello hi thank you yes i was here hi great to have you great great to meet all of you here and uh i would like of course to thank you for your blockchain convention and victoria and uh you for having me um so i'm a member of the european parliament i've been working on working on blockchain since 2015 uh with put there on the um blockchain resolution the first one that was very positive and innovation friendly and now i was the reporter for the smd on the dlt pilot regime um we managed to complete the dialogues i think we had um very interesting outcomes and we managed to create the first european sandbox of blockchain applications at our securities so thank you i'm very happy to to be with you since it has been a core of my my work blockchain great great excellent to have you all here that's great um so um maybe in a few sentences you could ever you already you already said but maybe you could explain a little bit your um your background whatever i think you have already marcel just from a high level and then we do a drill down uh deeper marcel and david uh basically what what have been your your your projects your most recent projects and then uh we drove a little bit down further myself if you want to go first maybe all right all right yeah so i i have been working on project genesis i'm here at the bis innovation hub in the hong kong center so project genesis is on exploring blt based distribution of government green bonds to retail we have built two prototypes and one of the prototypes was built by the team in which david was also by digital asset and gft great great okay um david so um so we've been doing a lot of work really in in a lot of different areas um but in terms of the work that's relevant to this discussion we've obviously worked with marcel and his team um on project genesis um and with digital assets our partner um there as well um and the other project that we've been working on um has been our smart communities project um which is around a secular economy circular communities um working with um partners such as the um the government of trentino um in northern italy and also group grupo erda which are a multi utility company um from uh also northern northern italy um and that's all around how to use blockchain tokenization to be able to improve um uh community values uh encourage people to be um to be using um to be using um better types of energy um and basically giving back to the community and and making people use local goods as well so it has a bit a bit like project genesis it has that focus on retail users and making them um make the right decisions about the way that they you know use their energy or their retail habits for example got it got it excellent uh you know maybe you could give a brief update on what your last projects involvements are in the blockchain space related to green bonds and secular communities slash economies yeah so i i think it's important to talk a bit about the lt uh pilot tourism to explain it because i don't work on projects i work on the regulations for products to be um i implemented so um it is part of the big digital finance pro package we had in the european uh parliament and it's um it has for the first time as i said a common regulatory sandbox to test and uh also develop applications um mainly a european primary and secondary market for tokenized assets so it's um i think it is very important because it was successful i think it's strengthening also the european single market um and uh of course uh you can also issue dlc financial instruments amongst which you can have bones including of course the green bonds so you can have this infrastructure to do that i think actually bis and eib they have issued green boards and developed or developed to prototype digital platforms um to allow investors to um to invest in green bonds so both they have tested that so it's very important that we're giving legal certainty uh for more players to join and so smaller players twenties and um dlt will allow all transactions to be recorded in a distributed ledger and expedite and condense uh trading and settlement to nearly real time and also it will enable the merger of trading and post-trading activities um i think that this is part like half i would say of the blockchain technology application that you can see in the finance sector at least um besides the media file which is the crypto assets which is the complementary file um and i don't know if you want me to elaborate a bit more on the bonds but uh it includes sovereign ponds and other forms of secularized security that depending on the time i can i can go into details that's great perfect okay um maybe maybe you can um actually explore a little bit with david and what um yeah this uh project in northern italy and then let's see about project genesis and maybe uh you can later on explore um and expand on on on the regulatory side and what you have just explained um so yeah david um uh i'll hand it over to you maybe you could explain um the northern israeli project so what does it do how does it work um why is it useful what are the stakeholders and all of that so yeah if you could if you could shed some light on that brilliant sure um so so so the um so so we haven't it's more of an initiative i think rather than rather than a singular project and we have had a couple of different iterations of it um but it's basically a initiative which we call smart communities and we work with large organizations um or local governments to be able to provide a tokenization system um which they can uh use to as i said before um uh incentivize people to make the right decisions about the way that they are um leading their life as within their local communities and with their energy providers so we've worked with um a major energy provider um as one of the main stakeholders here says google eda and we were doing um and this is one of the iterations that we've done um and with with that iteration what we were doing is we were tokenizing the energy usage um of um green energies so when people basically sign up for a green energy plan and they have that for a certain amount of time then they earn a certain amount of tokens um based on the amount of energy that they use and um the use of those tokens could then be used um for the purchase of other energy either energy efficient products such as reductions for example on um let's say like um the cost of a solar panel for your house um or maybe like insulation services for your house or um that's nothing like a low value uh sorry an energy efficient uh light bulb um or even things that are not necessarily about energy efficiency and energy themselves but things are more about reducing emissions in general so we had a supermarket chain which was also a part of this um consortium um and that supermarket chain what it's what it basically did is it it kind of created for this point system um a section in there in the supermarket which um which uh was for for products of like what we call like zero kilometer uh projects uh products um so they're like locally produced locally um sold by local farmers um and those products if you um if you were using part of if you were part of the smart community um a project or initiative with this one would would you would then be able to buy uh using these point systems or you would then be able to uh get a reduction on um because they were reducing emissions in general so that's the general um uh scope of the project we also had um uh the local government as well we also had an initiative another project with a local government as well with uh trentino local government which was the same it was more about um uh making sure that the communities could for example in the case of tourism when people visited uh towns that they could basically promote uh the use of um uh local resources in in in their town so basically giving out uh reductions for local um uh producers local cafes local restaurants other people prefer to do that rather than going to um parties and um and and both of these are now in like let's say like pilot stage um we have about four 4k people who are uh using them at this point in time um and we we estimate that we're going to have about 20 uh k uh users um in uh by february next year um if the rollout uh plan uh goes as as as as as we expect it to do interesting uh so if i understand correctly the function of the token is a bit like uh uh let's say a bonus system uh could it be described like that yeah so something somewhere between let's say like um a and like an affiliate scheme um and uh and uh and the currency so it's you know it deals with things like for example uh like that uh in the same way that like an affiliate scheme would would deal with that so this scheme itself is obviously the all of the members that are part of the scheme then basically have to do their own that um pay their own vats on the products that they're selling um but it it can be used for current in the kind of like quasi currency status if you have enough points to be able to buy for example i don't know unless they're like an electric light bulb or something like that okay okay there's what i want to ask it so the integration with v80 is done and price finding house price finding for example so we have a we have like a centralized treasury and that's part of the centralized treasury um application so in in the case of group reader it's the group error which is doing indicator trentino it's trentino which is doing it so you always have uh let's say one of the consortium members which has a treasury and that treasury is the is the customer does the and the price matching another thing in mind stabilizing to stabilize so you don't need to you don't get floating on a deck or something or even no no and this is this is actually a private private um consortium as well so this is not public blockchain this is not uh we're not using uh yeah any kind of distributive exchange or anything like that this is a tokenized system on the private um uh blockchain using a private token uh system what does it run on if it may ask so this one runs on hyperledger betsy um so and we've um yeah uh yeah both of the projects now are running on hyperledger perfect okay cool uh in terms of in terms of settlement so the settlement uh is um i mean settlement is linked obviously to to the token uh i mean to in terms of custody and so on so on so what how has been the experience experience on the on the uptake and on actually accepting uh the system and so so on so so it's um you know it's we've been kind of eking it out with the users of the system so it's been a kind of gradual process i think that people also have because it's something that the people that have access to get for free is most people are just taking it and then using it because because it's a you know this is advantageous of them to do so so it's you know i think that's the main benefit of it is that like like a traditional affiliate scheme a bit like i don't know like less than like miles or more of lufthansa you're probably not going to say no if if if somebody says to you well look you can get your coffee free at the airport right those people are going to do that so the uptake's actually been pretty pretty positive um and and most people who have been offered to be part of the scheme have actually taken out um that being said because we are working with local governments um because we're working with um you know like large companies like the elect like the um uh like the uh multi-utilities company um the process to be able to get people on board and uh has been slower because these are kind of like larger organizations and it has been a multi-year scheme that we've been working on for the past two or two and a half years now i think so it's not it's not something that's happened overnight um but when people kind of realized that it was available right they've been like in consensus um well they have been let's say that they have been warmed up to to use the system over time so exactly right okay hey i would love to uh dig deeper um david but let's let's see what i know you've also been involved quite a lot with project genesis but maybe let's have a look uh here because we're getting shorter in time a word from marcelo um on project genesis and maybe um before getting into that marseille could explain please um what um i mean what the biz innovation hub does and how is it related to the rest of uh and for international settlements right so the bank for international settlements it's an international financial institution which is owned by by other central banks so it's a it's a convener of central banks and so the main mission is to foster international monetary and financial cooperation so most of you will know the capital adequacy ratio which which is one of the things that that is regulated by the bis now the bis innovation hub has been set up relatively recently in 2019 and our mission is to to explore new technologies that can be used for central banks and also to explore new technologies which can be used to develop public goods for the global financial system and we are working in six key areas one of them is green finance and the other ones are subtech erectec financial market infrastructure cbdc open finance and cyber security and yeah so we are we are organized in centers around the world i'm in hong kong we have also a center in london uh one in sweden one in singapore and uh one in switzerland okay great perfect um maybe you could expand a little bit on on project genesis then so similar to um what uh david explained earlier like what did it do and so and so on what are the benefits um was it useful and so on that'd be great all right so in in project genesis we explore and dlt based distribution of government issued green bonds to retail and we have been doing this with the hong kong monetary authority for two reasons first of all the hkma is our host central bank so every center has a host central bank and the second reason is that in hong kong the hkma is in charge of government bond issuance so they were a natural partner to explore this the initial goals which we set when we conceived this project was that we wanted to mobilize and engage retail so our our vision was that a retail customer shall be able to to download an app for the cell phone and via that app gets onboarded to the tokenization utility and that retail customer can then order a government bonds in tokenized form green government bonds and then has them on the wall on the wallet on the phone and gets in real time the accrued interest that that is due because of the investment and crucially also a real-time feed on the green impact so one of the companies that we work together and is the company from hong kong all infra they are using iot and blockchain to read out the the green impact let's say from a solar panel so if you imagine that the retail customer helps financing setting up solar panels here in hong kong then the electric output of those panels would be measured by all infra the company that participated and the output is written on blockchain so this can be verified and by by the individual retail customers if they want but this can then be mapped directly up to the very individual investment to a co2 reduction which is due to this green bond investment so that that was the rough vision to mobilize and engage retail so if they invest they know my investment is going let's say into a solar farm in the new territories and the second goal which we had was to help the government achieve the green targets so hong kong is via china also part of the paris agreement they have green targets and so this and making this green bond issuance to retail more efficient may help them to to achieve those targets and the third goal was to develop and explore a possible new fintech ecosystem so there's lots of development innovation going on in the dlt space and so we think it's crucial to to explore this technology and and also familiarize market participants with that so those were the three goals which we wanted to look at and and achieve when we complete the project the way how we then carried it out was we set up an advisory panel with all stakeholders so and that panel consisted of regulators supervisors legal firms at the united nations were also a part of it um we had tech companies um bis was there of course and and the worldwide fund so um having all those stakeholders and people that have an interest in in green bond issuance we then did some design thinking workshops to first see okay what is the current bond issuance process in hong kong where are the pain points and so how can we make this more efficient uh via dlt by using this route to digitalize via dlt we then had two vendor teams that set up two genesis prototypes so each one set up a prototype one was digital asset and gfc so they set up a prototype on a permissioned blockchain framework and the other vendor team that was the liberty consortium from standard chartered bank and shareable asset they were using public blockchain infrastructure so they were using this bella block chain and um so both prototypes were based on these completely different blockchain philosophies in a way and so we wanted to see can both achieve these goals to really digitalize the the bond issuance on dlt and yeah so overall the project took about a year in that year so four months were purely due to development uh over like software development by by the two vendor teams and we were in integrated in this development via sprint integration approach so we were having lots of sessions with them and iteratively setting up these prototypes there are three reports which can be downloaded from our website and so prototypes were presented at hong kong fintech week and also at cop26 okay cool excellent if i can if i can um put a hook into there you said actually you're comparing hyperledger and stellar so basically a permission versus an open blockchain uh permission is blockchain is that to find out hey where the shortcomings on one and the other uh was that also a reason for that or was it to see hey what can we achieve or let's say technically and so because there was we were with each other we were careful not to make it like a a horse race uh between the vendors so we rather wanted to to have some uh how to say but the vendors they were not not really competing and with their technologies it was more cooperative spirit and we just wanted to see look can this be done on on both the public blockchain and the the the permissioned blockchain used by by by digital asset and gft we there were there were further differences in the prototypes that were set up so we asked for example the vendor team david and and digital asset gft that they shall really set up a prototype which uh which fits very well in the rather complicated bond issuance framework that we have here in hong kong so i i don't go deep into detail there but so it's an established system bonds are bought via banks or brokers they remain the legal owner of those retail bonds and then they give beneficial interest to the retail holder so and to to really fit into this it's it's quite i mean it's not easy to to cover all that so we asked one vendor team to really be able to completely mimic this and digitalize the system as it is and the other vendor the one on the public blockchain we asked them okay um show us really what is how would you set up this process if you would design it from scratch so let's say if you even go as far to disintermediate yeah so raise the maximum amount of efficiencies possible so we also had like differences in in the philosophies between the prototypes um in that respect good stuff excellent uh i would i would like to say a few words about this uh but we are running out of time on the on the aspect of permission versus uh uh permissionless i mean the way i see it that uh okay the the companies who choose it one is the change management part right so if you have a permission chain then you can control the changes and so on but you have certainly much wider security much larger security and more security primitives in the open uh permissionless blockchain but then the other reason for going companies into into permission is actually is the legal aspect so is that really the legal wrapper around and so so on because you can hardly actually uh um stop actually liability so if you run a smart contract and you know actually a bunch of companies are involved in that and something goes wrong then actually you know you might have a very very big risk on being sued and that would be from the jurisdiction which is you know most favorable in suits but um let's maybe uh just uh wrap up on on the point of you you two have mentioned david and marcel on what was it you your lessons learned your major lessons learned on on on this and maybe you could expand on the cash lag and these sort of things yeah so um i i had basically three high level key learnings there so and the first one is that um dlt is suitable for bond issuance across its life cycle so we digitalized the whole bond issuance process starting with the um with the term sheet secondary market trading onboarding of customers doing kyc up to maturity and and and redemption of the bond so all this can be done on blockchain um it works so it's uh it's doable one thing that we found is that um so regulation needs to to catch up with some respects if one wants to allow let's say to get all the possible efficiencies from blockchain so for example here in hong kong um it is not allowed that retail customers do peer-to-peer trading on the secondary market that that is implemented this meets so we we did this with the hong kong exchange who also participated in the project and so um it needs to be done by uh by brokers basically so we have intermediaries in there and even though technologically it's possible to do this peer-to-peer so this was implemented by the by the public blockchain vendor team it wouldn't be allowed to do this by regulation so it's it's simply not not covered and and it's it's not a gray aria it would simply not be allowed and then so that was the second learning so that regulation may need to to catch up a bit and and see what's technologically possible nowadays and and in a safe way so and then the third point is also related to raising all efficiencies of this dlt technology certain key technologies must be in place that are complementary so um cbdc or a stablecoin so you mentioned that the payment payments lack we don't have uh cbdc in hong kong we don't have a regulatory framework for stable coins so that means that if we would go live with these prototypes that's by the way and a very important point i think i didn't stress that enough so those were prototypes we did not go live the hkma made an announcement that they are considering doing a pilot next but that's up to them if they if they want to take that step now on the payments like yeah we we rent the prototypes uh having stable coins to carry out the payments lag in addition to the securities lag but we also told the vendor teams look be ready to implement this tomorrow and if you want to be ready to implement this tomorrow then currently the payment select needs to be carried out off chain with oracle technology using the rtgs system here so this was also implemented it it can be done but it is not as efficient and it doesn't come native to to dlt to to do this off chain i mean that's one of the biggest advantages that one can do this both on-chain payments lag and security flag and then you have the trust envelope which doesn't go to because you're off chain and so on you have all these questions around got it yeah maybe um maybe if i could answer that maybe from a technical point of view from the technology point of view um i think that some of the so i'll try and be quick i know that we're kind of running out of time here um one of the i think one of the key takeaways here was the uh the benefits of blockchain to be able to verify the green data that was coming from the iot devices um and to be able to validate that uh via their onboard um iot devices connected to the solar panels or the so or or solar farms and to avoid green washing so all of the stuff that happens down the line you obviously have a lot of efficiencies um from smart contracts and we've worked with damo smart contracts in this case but any smart contracts in general you would have a lot of efficiencies being able to you know get rid of intermediaries or whatever and reduce costs and time but the fact that you can definitely guarantee that the iot data was correct is is is important and that bridge directly to the iot data and what all infra do and other competitors of theirs is very important work and i think we'll see more of that in esg and and um and uh and and green bonds in general and then the other thing is about interoperability as well so here we were using um canton uh canton protocol um so we were basically using damn smart contracts on top of the canton protocol and that canton protocol was going into two different uh types of blockchains uh so one was hyperledger fabric and one side and the other one was consensus well the other one was um uh hyperledger betsy so the fact that these were being uh used together and one was uh run by the hkx which was the consensus sorry the um the hyperledger between which the fabric was one for hkma meant that each of them could model their own domains as they wanted to using the right kind of technology for that particular domain and i think that we'll see probably more of that and more of those kind of like inter-domain uh connections in the future um and kind of connections of different domains okay got it got it um okay uh the i think it's very valid point uh eva i think she just left we still have a few minutes left um okay uh on on the um coming back on you on your last point um i think indeed it it's very important to have that in particular uh regulation where where where it's let's say where only procedure controls matter like i believe what i see it if you have the if you have iot devices there's some companies for example i could mention a name but i better not so which actually do uh i mean they they can they can basically um guarantee the integrity on iot devices but when you have the the the level of um uh the supply chain there's really the garbage in garbage that that can happen you could have an sdk on on some of those devices but then you have to uh um convince those those companies uh i don't know victoria do you know if um eva will come back i don't know okay we have still um five minutes left if there are questions from the audience that would be great no maybe maybe to to labor on a little bit more unless there are any questions from the audience if there are then please but to maybe to um to labor a little bit more on your last point i think that um with with these kind of solutions that there is also a need for some kind of you know third party or like some some kind of auditor as well because regardless of the fact that you have these systems where you can connect up an iot device to a solar panel to be able to get the information from that solar panel if you don't have a kind of like third-party audits or you don't have that kind of role in this kind of network when we kind of go to production um then then you could still be effectively whitewashing the the product because it's it's just down to the people that are using it to believe you that that actually is the solar panel that's that's related to the green bond et cetera so i don't think that we will 100 necessarily get rid of auditors and the role of the auditor in um in green bonds or or esg completely um but i think that this is a big step forwards to being able to show that transparent um green energy data and associate that with with you know financial um instruments right right i think we had a question here there are some questions indeed um so david there's one for you you could name the initiative and where can we find more info about it please so so the um so the initial issue initiative um that um that i was speaking about is a smart communities initiative if you go on to um our website there's a there's like a uh a um a web page uh just regarding that um initiative and um or if you want you can please just contact me directly either via linkedin or the umbrella platform um and and get more information on that i think we have a handout as well as part of our um as part of our uh booth here in the ebc bring in good stuff uh and there's a follow-up okay okay that's not a transfer with a base between working senator green bonds and drt i think um yeah so uh i think just reach out to david and um you can he can fill you in okay um i don't know if there are no other other questions i think we're yeah we're pretty um close to finishing i think we can wrap it up okay guys thank you very much um it was very interesting um thanks a lot also um victoria and the organizers and a team that was great thanks a lot all right thanks a lot for having me thank you thank you very much been a pleasure thank you hello hello goodbye thank you very much for yeah for a great panel discussion i can see we lost ever i'm sorry for that um but yeah i i can see two questions here from carsten i don't know if you have one second to answer those those are probably for myself um did you yeah yeah i see them on screen um the first one is other central banks also duplicating the piloting project by the hong kong monetary authority so um the in in project genesis we did not acquire the ip of the prototype so uh what we did we wanted to show what is possible and what we found has been put into three reports um of project genesis so you can go to the bis homepage and look for the bisih hong kong center and then you will find their videos on project genesis but also three reports um and so if another one of another central bank is interested in carrying out such a project then they can build on the learnings that we have or directly probably approach one of the vendors if they want or make a public tender but so we we we have not uh we would not be able to provide the ip of those prototypes to other central banks and so the second one is related the second question how does the knowledge transfer within the bis work between central bank on green bonds and dlt so we are we are closely sharing our findings with the other centers we are basically having weekly calls we are presenting the projects to each other and we are also having projects that are run jointly by some centers and so for some projects ip is acquired and this is in principle be available for other central banks or for other hubs and for some projects we don't do that there there's naturally an effect on price depending on which which route one goes good stuff excellent thank you thank you again thank you so much to the three of you and thank you also to eva kylie i've just shared in the chat box a link to tft's booth so you can reach out to david and i know you had some questions and you want to see a bit more the papers if not you can also find david via the people's tab or on linkedin or on twitter yeah thank you marcus thank you david thank you marcel and see you in the next chat thanks bye [Music]