Last month, Daimler AG, the company behind the manufacturing of Mercedes-Benz, issued a €100 million bond on a private iteration of the Ethereum blockchain. Now, analysts are speculating that the scope of the bond project suggests that Daimler is just getting started exploring the cryptocurrency and blockchain space, and that what is to come may dwarf even the company’s automotive manufacturing arm. The type of bond, in this case, is called a Schuldschein, and it represents the latest German version of a private placement which has become more and more popular in the years following the 2008 financial crisis. Bonds of this type now total more than €20 billion annually. Could Daimler be preparing for large-scale use of an Ethereum-based Schuldschein in the future?
“Definitely Not Disappointing”
Daimler AG’s senior management of treasury process management, Eva-Marie Scholz, informed Coin Desk that multiple business departments within the firm would now explore use cases thanks to the success of the first of these bonds. She explained that “it was definitely not disappointing. [Reflecting on] the process, we are able to review the potential of blockchain to make real business model changes for overall capital markets and banking transactions.” The Schuldschein bond seems to be a successful way for corporations to borrow money from a limited group of private investors while simultaneously limiting disclosure and regulatory requirements. These bonds are often issued for between 3 and 10 years and in amounts that are occasionally quite large: as much as €500 million.
Daimler’s first blockchain bond partnered with Landesbank Baden-Württemberg (LBBW). Nonetheless, the bond is a small percentage of the firm’s €153 billion in revenue from last year, suggesting that many more Schuldscheins using the blockchain could be ahead as well. Orhan Oezcelik of Daimler’s capital markets division said that the company “issues around 50 to 70 bonds annually. While we don’t expect blockchain to impact the total volume of issuances, the technology could allow a greater number of transactions which would then be smaller in size.”
Room to Improve
Scholz indicated that there would be room to improve the standard bond issuance process. Although Schuldscheins are considered streamlined in comparison with other bond types, they still require about 20 pages of documentation each and often take nearly four months to close. Daimler executives believe that blockchain could help to further streamline this process while also limiting risk for investors while increasing transparency. If blockchain-based Schulscheins were to become the norm, that might constitute a multi-billion euro area each year. The World Bank has also recently explored the idea of issuing bonds on a blockchain in the past few months, suggesting that the asset class as a whole may be fit for disruption on a large scale.