The volcano cat bond will be placed on an ILS blockchain, making the transaction particularly cost-effective for the aid agency and enabling free trade among ILS investors. The ILS Blockchain was set up by REplexus to provide an alternative to the Euroclear settlement service.
The blockchain provides an alternative to traditional clearing, documentation, custodial, and administrative services. This reduces costs by US$200,000 to US$400,000 per issue compared to regular settlement system such as Euroclear or DTC.
Additional benefits of the blockchain structure allows investors to hold their own securities on their own computer server (or node) rather than use a custody bank, and therefore save 5-10bp per annum on the value of the securities they hold.
Other benefits include: (1) Directly fulfills MiFID II requirement for market transparency; (2) No transaction costs for settling secondary market trades; (3) Secondary trades are settled and confirmed instantly; and (4) Directly fulfills MiFID II requirement for market transparency