How the Digital Bonds of China Construction Bank and the Fusang Exchange Behind Them Operate

1. Four Interpretations of CCB's Digital Bonds

On November 11, multiple media outlets, including The Wall Street Journal, reported that China Construction Bank plans to issue a digital bond to raise no more than $3 billion, based on the Ethereum network. Both individual and institutional investors can purchase the bond using US dollars or Bitcoin.

In the current period of soaring Bitcoin prices, the news that CCB's digital bonds can be purchased with Bitcoin has immediately attracted significant market attention, with some voices suggesting that CCB may become the domestic "Grayscale Trust." However, according to Chain Catcher’s findings based on official materials and online reports, there are still many misconceptions among the public regarding this digital bond issuance, and more details about the issuance have emerged.

First, this digital bond from CCB is issued by the Labuan branch of China Construction Bank, which officially opened in October 2019 and obtained Malaysia's first digital banking license as well as Southeast Asia's first RMB clearing bank license. It is reported that Labuan is a small offshore financial center in Malaysia and a tax haven.

Official promotional materials indicate that CCB had also exchanged a memorandum of cooperation with Fusang Financial Group at that time, which is the parent company of Fusang Exchange, the only trading platform for this digital bond. This suggests that the cooperation between the two parties had been anticipated.

Second, this CCB digital bond is issued based on the Ethereum network, meaning it is the first publicly traded debt security on the blockchain. It is generally believed that blockchain technology can significantly reduce the clearing and settlement costs of securities issuance. In the past, the Nasdaq Stock Exchange had also attempted to use blockchain technology for securities issuance, but not for publicly traded securities. This issuance of CCB's digital securities based on Ethereum is considered one of the biggest breakthroughs in applying blockchain technology in the securities market.

Henry Chong, CEO of Fusang Exchange, also stated that the digital bond simplifies the requirements from issuance to listing, allowing issuers to operate without multiple processes in a fragmented environment. Additionally, global investors can now benefit from investments previously reserved for large institutions, while also enjoying low-cost and transparent fees. "This is a perfect demonstration of how digital securities can drive financial inclusion. We believe this will be the beginning of Crypto 2.0," said Henry Chong.

Third, this CCB digital bond adopts a zero-coupon bond issuance model, with a face value of $100, but the issuance price for investors is $99.7970. Official information shows that the CCB digital bond will be listed for trading on November 13 and will mature on February 26, 2021, for a duration of 105 days, with an expected annualized interest rate of 0.7%.

However, Henry Chong also mentioned that global investors can purchase this product, except for tax residents of China and the United States, as well as individuals and entities from Iran and North Korea.

Fourth, this CCB digital bond will be traded on the Fusang Exchange starting November 13, which is also the only issuance and trading platform. Users can purchase and sell it using US dollars or Bitcoin, with a transaction fee of 0.025%.

But despite Fusang Exchange accepting Bitcoin as a payment method, this does not mean that CCB will directly accept Bitcoin as a payment method. Information shows that Fusang Exchange will first convert the Bitcoin received from investors into US dollars before purchasing the bond, which also means that CCB will not directly accept Bitcoin and bear its price risk.

Huang Yong, Director of Strategy and Business Development at China Construction Bank (Malaysia), also told the media that this is just a pilot and innovation, and from their perspective, it is merely absorbing bank deposits. He also stated that CCB will not engage in Bitcoin or cryptocurrency trading.

2. The Fusang Exchange Behind It

In addition to the CCB digital securities themselves, another noteworthy aspect of this event is the Fusang Exchange. Why has it become the only issuance platform for CCB's digital bonds? What kind of exchange is it?

According to its official website, Fusang Exchange is a subsidiary of Fusang Group, which announced in March this year that it had obtained a securities trading license issued by the Labuan International Business and Financial Centre (IBFC) in Malaysia. Its founder, Henry Chong, is the son of Zhang Guoguang, the founder and chairman of Singapore's Portcullis TrustNet Group, which is one of Asia's largest independent trust companies.

Fusang Exchange claims to be Asia's first securities exchange focused on digital assets, allowing companies to go public through digital IPOs, providing end-to-end infrastructure to support security token offerings (STO), enabling both retail and institutional investors to access the digital asset market safely and compliantly.

In other words, the main goal of Fusang Exchange is to facilitate the initial issuance and secondary trading of security tokens on its platform, changing the way various assets are recorded and traded. It currently supports trading of security tokens for multiple funds as well as Bitcoin and Ethereum, and has made significant attempts in promoting the issuance and listing of security tokens recently.

In September of this year, blockchain venture capital firm SPiCE Venture Capital announced that its tokenized fund SPiCE VC was listed for trading on Fusang Exchange, becoming the first security token to be listed on the exchange. Previously, SPiCE Venture Capital had completed the tokenization of its institutional fund at the end of 2017, marking LP interests in the SPiCE fund, and has already been listed on multiple security token exchanges. It is reported that companies invested by SPiCE VC include Securitize, Bakkt, Arcax, and http://Lottery.com.

At the same time, another blockchain venture capital firm's security token, PRTS from Protos, was also listed for trading on Fusang Exchange. This institution provides investors with a way to gain rights to a portfolio of BTC and ETH as well as crypto assets in the DeFi space through the PRTS token.

The CCB digital bond launched today is the third securitized token introduced by Fusang Exchange, marking the exchange's first exclusive security token trading product, transitioning from previously anchored crypto asset security tokens to those anchored in traditional financial bonds, which has suddenly brought fame to this previously little-known exchange.

In fact, since March of this year, Fusang Exchange has begun tokenizing its parent company, Fusang Exchange Holdings Ltd (FSX), issuing all of the company's shares as ERC20 tokens on the Ethereum network. This token has been fully approved and compliantly issued as a securitized token by the Labuan Financial Services Authority (LFSA). Meanwhile, the FSC digital security is directly linked to Class A shares of Fusang Group, representing contractual relationships related to company rights, revenue streams, and assets, but does not carry voting rights of common stock.

Currently, the exchange is also conducting pre-IPO fundraising for its FSC token on its official website, with a fundraising target of $6 million, valuing it at $160 million. Only after officially completing the initial public offering can the FSC digital stock be formally traded on the exchange.

All of the above reflects that the field of security token offerings (STO) is showing many positive developments and signals after a long period of dormancy, with mainstream financial institutions exploring and practicing on a large scale, greatly accelerating the application of blockchain technology in the securities market.