12 of the most prominent banks gathered at Tel Aviv Stock Exchange (TASE) on May 31st, 2023, to participate in Project Eden, a highly-anticipated PoC of the first digital government bond issued by the Israeli Ministry of Finance.

International and domestic banks – Barclays, BNP Paribas, Deutsche Bank, Goldman Sachs, J.P. Morgan, Merrill Lynch, Bank Discount, First International Bank, Bank Leumi, Bank Mizrahi, and Bank Hapoalim – witnessed the minting and issuance of the digital bond, and participated as primary dealers in the bidding process through their Bloomberg terminals.

Designing a solution for Project Eden

The baseline of the project was defined by these key requirements – the tokenization of fiat, the tokenization of government bonds, and instructions to prompt the exchange of assets. The solution involved 3 separate smart contracts that handled the tokenization of 2 distinct asset types, and their subsequent bilateral settlement.

Smart Contract 1: Minting the Payment token

The purpose of the payment token was to be used as payment and a core component of settlement for the issued bonds. 1 payment token represented 1 Israeli Shekel (NIS) within the Eden ecosystem. The system, however, has been designed to enable support for other digital currencies – i.e. USD, EUR – as potential alternative payment types in future implementations. The smart contract was deployed from a Fireblocks wallet and ERC-20 token minted via Fireblocks API.

Smart Contract 2: Minting the Security token

The security token is the digital representation of the bonds issued by the Israeli Ministry of Finance. At the event, a single series of government bonds were issued and minted as ERC-1155 tokens, using a dedicated dApp that was developed specifically for this project. The dApp was built on VMWare, a permissioned blockchain which enables interoperability with other EVM blockchains in future. The minted tokens were stored in the Ministry’s Fireblocks wallet which only permissioned users have access to transfer.

The system has however been designed to enable the issuance of multiple bond series as long as they contain the following information:

• A name
• A unique ISN
• Series size
• A unique identifier on the blockchain
• The maturity date
• The bond status

Smart Contract 3: Initiating bilateral settlement of both token types

Following the issuance, pre-approved dealers – in this case, the participating banks – simulated the deposit of fiat into TASE accounts after bidding for the bonds through their Bloomberg terminals. Payment Tokens were then minted according to the amount of fiat deposited by the dealers. When both Security and Payment tokens were minted on-chain to the relevant accounts, the permissioned users initiated the bilateral atomic settlement (DvP) of the Security Tokens and Payment Tokens from the Blockfold UI.

Fireblocks provides participants with secure access to the atomic swap dApp directly from the Blockfold UI. The atomic swap dApp ensures that payment to the issuer is made using approved Payment Tokens, and the relevant Security Tokens are transferred to the primary dealers.

The Eden system was configured to facilitate the settlement of security tokens against various digital currencies and is aligned with ongoing exploration by central banks around the world, looking at potential integration of CBDCs into traditional financial systems.

The Project Eden Architecture

Project Eden is the first ever initiative to bring together all the necessary components of a digital financial infrastructure, seamlessly incorporating the following the components:

• An EVM-compatible, private, and permissioned blockchain that hosts the distributed ledger and smart contracts for minting and bilateral transfer of tokenized assets
• A decentralized application that interacts with the distributed ledger and acts as the user interface for all system participants
• Tokenized bond (ERC-1155)
• Tokenized fiat (ERC-20, and CBDCs in future)
• Custody solution for the security and management of digital assets
• An asset transfer network
• DvP mechanism
• Fiat and bond tokenization interface
• Integration with Bloomberg terminal, the industry-leading traditional trading system