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yeah good morning ladies and
gentlemen my name is Stefan kesek I am
here on stage today with Ian Kon we work
for UBS a large Swiss bank and we are in
the crypto 2.0 lab of UBS that's part of
the Innovation group um group Technology
Innovation and we are very happy to be
here today and talk about smart bonds an
experiment that um the crypto 2.0 lab is
conducting so um the goal of the lab is
to explore blockchain
technology we have defined a set of use
cases and um we are going to apply
blockchain technology
and evaluate um how we can we can best
um make use for the bank and for our
customers so uh most of the work we do
is actually learn and listen so we are
talking to a lot of solution providers
to a lot of developers a lot of software
vendors and um other partners we also
doing a lot of
Education most of the education is done
internally but but we're also talking to
to other financial institutions we are
part of the rri Consortium the
distributed Ledger
group and we also talk to infrastructure
providers central banks um governments
um
Regulators um because we we all want to
understand how can we best apply
blockchain technology to
finance
so um we are very committed to um
enabling developing and promoting Open
Standards and so that's why we like
ethereum so much it's a very nice very
good open standard a powerful technology
that we can use we like the flexibility
that it provides so we can basically
Implement arbitrary complex business
logic we can put um a lot of different
types of assets on the blockchain and um
model whole life cycles of financial
instruments and we will see in a in a
minute uh one of the one of the
experiments the actually the earliest
the first experiments that we did in the
lab with
etherum
and I I just uh want to go quickly into
the the benefits that we see or some of
the some of the early learnings that we
are taking from this so it's a it's a
very nent technology yeah so we are
still in a in a very early phase and I
agree completely with Gavin I guess
guess it was in in one of the first
talks um that he said um we we need to
implement in order to understand the
full potential of this technology and we
need to to play around with it in in in
order to to get a feeling for what is
possible in the future and I've I've
just um shortly followed the
presentations before I mean obviously we
are still part um if you remember this
this layered thing we are still part of
the of the lower um uh of the lower
sphere with the with all the regulations
and all the jurisdictions in place but
we definitely see there is a lot of
innovation coming towards us and we are
here to learn and we are here to share
with you what we did so um the first
experiment um we did in that space is
smart bonds actually we could yeah so
smart bonds who who of you knows um how
a bond
works all right so then maybe just just
very quickly a bond is a a basic form um
of a loan so you have um an issuer uh on
one on on one side on the left side who
issues the bond that's typically a
company or an organization or a
government um that needs to raise funds
they need to finance their operations
they need to uh Finance their business
and on the other hand uh on the other
side you have investors you have the
buyer of a bond that's typically
institutional investors and the
interesting thing is in between yeah so
this here is a very very much simplified
uh model in between you have a whole
bunch of intermediaries of trusted third
parties you have Central counterparties
you have uh Central Securities
depositories you have custodian Banks
actually it's layers on layers of
intermediation and we think uh bonds are
a very good um example to show the
benefits and the potential of a
technology that is here to dis
intermediate yeah and to replace those
Central trusted parties with something
else and that's software actually we we
can show in our proof of concept that we
can replace a lot of those
intermediaries with a piece of software
yeah for them that's not a very
comforting thought but um it's actually
very very interesting um to see that in
action and that's what Ian is going to
show us so Ian please um show us what we
did thank you Stefan so yes so Ian Cen
I'm I'm a technologist in in the crypto
lab as Stefan has has indicated um I I'm
I'm the one who got to play um we we
call them
experiments but it's it's it's fun so
smart bonds what do they look like well
we we took a very simplistic approach um
we've got a fair fairly small set of
contracts to to implement the platform
for for the experement um contracts
you'd look if you looked at them you'd
say they're they're rather
monolithic um you know we know there's
there's work to be done in that space
But but fundamentally we have the the
main Bond contract which is the
effectively the arbiture of all the
actions we we then have a a coin so we
have a token um one of the early things
we identified was the need for a for a
token to allow onchain settlement rather
than rather than going offchain so so
we've we've called our boncoin um maybe
not too imaginative but but it but it
worked for our purposes um we needed to
to simulate the concept of of trusted
feeds so we have a benchmark contract
which obviously would be providing rates
for for floating rate bonds and then we
had a a simple registry um which in the
real world scenario you know we need to
extend to to to create true you know kyc
Etc Etc so you know Fair fairly simple
structure um as you can see on the
screen so just a few few parties
involved but but the primary actors are
obviously the bond issuer and the bond
investor um what I'll do now is I I I'll
actually walk you through the the demo
and and fingers crossed at this
point so so on the screen in front of
you now is as you can see a very simple
UI we've built to to to demonstrate the
functionality that that we have in
in the smart Bond
platform um what what we've got on the
left hand side is the bond issuer um
nice nice and orang and and a nice nice
name there issuer and on on on the right
hand side we have the the bond buyer so
um in this instance we've got eth um PLC
will be issuing the bond and big fund
who will be buying the
bond so obviously as I said the the ax
is involved here have gone through a
registration so they've got access to
the platform um we ski that
step so so what I'll do now is I I'll
put on the hat of the of the of the bond
issuer and and now I'm going to create a
new offer to place into the
market um I've I've pre-filled
everything out so in in this instance
we're going to we're going to choose a
fixed rate bond uh paying a 2% um we'll
have a a coupon frequency of 6 months
and the bom will last a year and and I
know you're going to worry now that I'm
going to make you sit around for a year
to see the the payments occur but
software is a wonderful thing so we've
actually manage to speed up time so this
should should take place in a few
minutes so I I'll submit that offer um
so the the issuer gets a notification
that the the the transaction's been
accepted and it's now being pushed into
the into the network so this is all
running on my laptop at this point so so
hopefully it can keep up
so in in a short in a short while the
there's there's a single minor in this
instance here they'll mine the block and
both both parties should see a
confirmation of of the new Bond offer
and and this is obviously the point at
which I I I hold my breath and cross my
fingers
MH so we are waiting for the
confirmation now
and and this is where I quickly check
I'm not sure it's oh look there we go
here we go patience patience is a virtue
so there we go so both parties saw the
saw the offer being confirmed on the
chain and there we have a new entry Bond
number 40 um being issued well the
author is from eth
PLC um as as we said a 2% coupon one
onee maturity um now as if I put the Hat
on of the buyer I can now go and and
create register my interest in in that
Bond so what I what I do simply here is
I'm I'm going to invest a million B
coins so I've I've I've registered that
interest um one of the things we did for
this is is we we built in a escro
capability so the the when when you
register your interest that you actually
make the purchase of that point and
there's obviously different models you
could you could take take to solving
this problem but at this point we we we
we we capture the funds and hold them in
escro and they're held in escro by by
the bond contract so the issuer at this
point will not see any any of the money
not until they actually complete the
issurance and and handam me over the
bonds so we just wait for for that that
to be confirmed that there we go and if
I just go and check my account there I
can see that I've I've made a payment of
million coins and it's actually gone to
the bond contract so so at this point
the issuer still got not got the money
but obviously it's the issuer I can
now now I've got my interest obviously
in the real world scenario there'll be
be many interested parties so we we'll
go and issue that Bond and we'll issu
the full amount we added the capability
in the platform to do a reduce the level
if the if the bond was over subscribed
and and then the then the issuance would
occur on a Prater basis and you'd get a
refund but but with the full amount
here so so I've I've now now issued the
bond and and when that gets confirmed if
I look at if from the issue of
standpoint if I look at my account I
should see the million Bond coins in my
my account and obviously traditionally
once the bond has been issued what what
would what would previously happen is
we'd have other parties that would then
essentially be recording who owns the
bond and who needs to be paid at the
appropriate times um so there we go the
issue's been confirmed so let's check
the account of the of the of the issuer
and there we go we've we've had a
million coins from the bond contract but
but let's let's check cuz hang on am am
I is is the holder and actually
officially holding that Bond so let's
have a look so big fund there we go uh a
th000 10,000 bonds to the value of a
million coins um the the good thing
about um ethereum and and obviously
blockchains is is we can see all the
events that have occurred all the
transactions that have occurred so we
get a full history so we can see the
offer the indication of interest and and
the actual
issuance um as you can see there so the
maturity and coupon dates are just just
be a few minutes so so hopefully we
won't run out of time and we should see
some payments occurring but as I say the
the the system now is replacing what
would typically be the paying agent so
that so the contract itself will will
pay out the
funds and and you know we followed the
pretty much the standard for for um
token contracts so you you have an
approved um essentially what we call a
signatur on the account and the bond
contract acts as that
signature okay so that that was a very
quick um demo while um maybe maybe we um
need to uh make a way for the next ones
so we are around for the whole day we
happy um if you want to catch us and and
um ask questions that's very fine for us
um thanks a lot for your attention
thanks for the
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invitation