Automobile maker Daimler AG and German banking group Landesbank Baden-Württemberg announced the successful test of a distributed ledger technology network, or blockchain technology, to execute a €100 corporate bond, or about $114 million USD.

The transaction took place yesterday and involved Daimler executing the one-year corporate bond through LBBW known as a Schuldschein, which is a type of unlisted, private corporate debt under German law. As part of the bond execution, savings banks Esslingen-Nürtingen, Ludwigsburg and Ostalb as well as LBBW acted as lenders.

The entire transaction — from the origination, distribution, allocation and execution of the loan agreement — was automated digitally via blockchain technology.

“This pilot project is our first step in testing the wide variety of possibilities for using blockchain technology and assessing this technology’s potential for future transactions and financial processes,” said Bodo Uebber, member of the board of management of Daimler.

Uebber added that Daimler is simultaneously conducting other projects to research how blockchains could be used to increase the efficiency and support for the company’s business models.

Financial technology institutions have been testing blockchain technology as a method of providing security for transactions for the past few years. Corporations and financial institutions believe that the intrinsically secure nature of blockchains — by distributing an encrypted ledger that uses subsequent transactions to secure past transactions — can provide an efficient, tamperproof alternative to legacy financial frameworks.

“Blockchain technology will change the role of banks as intermediaries in the economic process,” said Joachim Erdle, head of corporate finance at LBBW. “We don’t want to merely observe this development; we want to proactively shape this field. The Schuldschein is especially well-suited for our entry into the use of blockchain technology.”

With this test transaction, Daimler and LBBW follow in the footsteps of other institutions doing similar work. In 2015, Overstock.com Inc. launched TØ.com, which announced a $25 million bond powered by blockchain technology (and its first buyer in June of that year). Founded the same year, financial blockchain think tank R3 CEV LLC raised $107 million in 2017 and continues to work with various institutions around the world to develop finance instruments.

Many blockchain solutions now proliferate in the industry including PricewaterhouseCoopers’s Vulcan Digital Asset Services and The Linux Foundation’s collaborative Hyperledger Project.

LBBW intends to use this test to inform future exploration of additional areas for blockchain application. The banking group hopes to use the technology to transform the proven function of banks as trustworthy intermediaries for finance in the digital world and to increase the efficiency and security of transactions between institutional and corporate parties.

The submission, execution and completion of corporate loans, LBBW said, is labor-intensive and involves a multitude of manual steps for processing – for example, during the creation of loan contracts and the examination of received payments.

Other industries, including financial technology discussed above, have sought increased efficiency and security using blockchain solutions. Daimler and LBBW expect blockchain to have similar efficiency-enhancing potential with regard to syndicated loan transactions and export financing.

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