Research paper

Designing the future of bond markets: Reducing transaction costs through tokenization

Using a transaction-cost-theory lens, the paper identifies seven meta-requirements and derives five design objectives for an Ethereum-based bond prototype, from which it formulates five design principles for blockchain-based bond markets: apply modular design, exploit multi-token standards, automate on-chain payouts, restrict forced-transfer functions to regulators, and implement smart-contract-based crypto securities registers.

Paper

Overview

Publication metadata and narrative from the current library record.

Authors: David Cisar, Benjamin Schellinger, Jens-Christian Stoetzer, Vincent Gramlich, Tobias Guggenberger, Nils Urbach, Florian Lennart Weiss
Year: 2025
Venue: Electronic Markets 35:9 (2025)
Methodology: Design science research; transaction-cost-theory lens; Ethereum prototype; derivation of meta-requirements, design objectives and principles.
DOI: 10.1007/s12525-025-00753-3
Design knowledge: View design knowledge on GitHub

blockchainbond-markets-tokenization-tacdesign-science-researchfinance-bondssecuritiestokenizationtransaction-costs

Summary

Artifact

An Ethereum-based bond prototype (security token offering) reducing transaction costs.

Methodology

Design science research; transaction-cost-theory lens; Ethereum prototype; derivation of meta-requirements, design objectives and principles.

DSR grid

Six dimensions represented in the current paper record.

Problem description

Bond markets face many inefficiencies and high transaction costs, and academic literature lacks generic design knowledge - under a transaction-cost lens - for designing blockchain-based bonds.

Input knowledge

Transaction cost theory (TAC) as the kernel theory; tokenization and securities literature; Ethereum token standards (ERC-1155); regulation such as MiCAR and eWpG.

Research process

Design science research: an Ethereum bond prototype, with meta-requirements, design objectives and principles derived under a TAC lens.

Key concepts

Bonds, design science research, transaction cost theory, blockchain, tokenization.

Solution description

An Ethereum-based tokenized bond (security token offering) prototype that reduces transaction costs. Solution-space representation: Instantiation (prototype) plus a design theory (meta-requirements, design objectives, design principles).

Output knowledge

Seven meta-requirements (structured along the TAC dimensions of frequency, asset specificity, and uncertainty), five design objectives, and five design principles: modular design, multi-token standards, automated on-chain payouts, restricting forced transfers to regulators, and smart-contract-based crypto securities registers.

Paper design map

The default semantic design map canonicalizes stored design relationships; Raw links retains the complete technical Markdown-link view.

Design-knowledge map

17 stored concepts / 14 canonical semantic relationships

Concept types

Show relationship labels

Design knowledge

Directly linked concepts, grouped by their represented design-knowledge category.

5 Design Objectives

design-knowledge/bond-markets-tokenization-tac-do1

DO-1 - Minimize latency of settlement processes

The prototype should enable nearly instantaneous settlement of trades. The delay between the initiation of a trade and the actual settlement of a transaction is to be reduced to a minimum.

bond-markets-tokenization-tacdesign-objectivefinance-bondssecurities+2

design-knowledge/bond-markets-tokenization-tac-do2

DO-2 - Reduce complexity (standardized interfaces and consolidated roles as well as responsibilities)

Since the conventional securities landscape is quite complex, the number of separated entities and manual processes leading to extensive TAC should be reduced to a minimum, with the issuance process as standardized as possible.

bond-markets-tokenization-tacdesign-objectivefinance-bondssecurities+2

design-knowledge/bond-markets-tokenization-tac-do3

DO-3 - Reduce access barriers (flexible issuance sizes and secondary market support)

The prototype should allow issuances of all sizes, reducing the barrier to consider bond issuances as a natural financing alternative, and should also support trading in secondary markets, not restricted by business hours or geographics.

bond-markets-tokenization-tacdesign-objectivefinance-bondssecurities+2

design-knowledge/bond-markets-tokenization-tac-do4

DO-4 - Optimized information sharing

The prototype should reduce information asymmetries, creating transparency across permitted stakeholders and reducing risk, while still ensuring investor privacy for data protection and banking confidentiality.

bond-markets-tokenization-tacdesign-objectivefinance-bondssecurities+2

design-knowledge/bond-markets-tokenization-tac-do5

DO-5 - Ensure regulatory compliance (with MiCAR and eWpG)

The prototype must fully comply with the legal framework in Germany, covering both the token and specific regulatory requirements such as KYC and AML checks, forced transfer under judicial enforcement, and inclusion of a crypto securities registry (CSR).

bond-markets-tokenization-tacdesign-objectivefinance-bondssecurities+2

5 Design Principles

design-knowledge/bond-markets-tokenization-tac-dp1

DP1 - Apply modular design of distinctive system components

Modularly structure complex bond-market systems into distinct, interconnected contracts to work within Ethereum's contract-size limits, using modifiers and specific sender functions to protect components from unauthorized access.

bond-markets-tokenization-tacdesign-principlefinance-bondssecurities+2

design-knowledge/bond-markets-tokenization-tac-dp2

DP2 - Exploit multi-token standards

Use multi-token standards (e.g., ERC-1155) when issuing multiple security tokens sharing comparable characteristics, to conserve blockchain storage and simplify architecture.

bond-markets-tokenization-tacdesign-principlefinance-bondssecurities+2

design-knowledge/bond-markets-tokenization-tac-dp3

DP3 - Automated on-chain payout mechanisms for investors

Integrate on-chain settlement using claim capabilities in disbursement, empowering investors to control the timing and method of interest payments and removing reliance on issuer/platform trustworthiness.

bond-markets-tokenization-tacdesign-principlefinance-bondssecurities+2

design-knowledge/bond-markets-tokenization-tac-dp4

DP4 - Restrict forced-transfer functions to regulators

Restrict particularly critical functions such as forced transfers to regulators only, to prevent abuse of power while complying with regulatory requirements.

bond-markets-tokenization-tacdesign-principlefinance-bondssecurities+2

design-knowledge/bond-markets-tokenization-tac-dp5

DP5 - Implement smart-contract-based crypto securities registers

Implement a crypto securities register (CSR) within a smart contract for digitally tokenized bearer bonds, disrupting the traditional custodian chain and accelerating settlement.

bond-markets-tokenization-tacdesign-principlefinance-bondssecurities+2

7 Meta Requirements

design-knowledge/bond-markets-tokenization-tac-mr1

MR-1 - Reduce time-intensity

Although the clearing and settlement processes have been improved and standardized, settlement and clearing time still vary across some markets and, in most markets, take two business days. The prototype shall minimize process times.

bond-markets-tokenization-tacfinance-bondsmeta-requirementsecurities+2

design-knowledge/bond-markets-tokenization-tac-mr2

MR-2 - Reduce stakeholder complexity

Numerous intermediaries, such as banks, custodians, or clearing houses, are involved in a securities transaction, which causes significant complexity. The artifact shall reduce this source of complexity.

bond-markets-tokenization-tacfinance-bondsmeta-requirementsecurities+2

design-knowledge/bond-markets-tokenization-tac-mr3

MR-3 - Avoid manual and analog processes

The issuance of securities involves many manual processes, representing a potential cause of human error; physical securities certificates or global notes cause an additional administrative burden. The prototype shall avoid manual processes to a maximum extent and digitize securities certificates if possible.

bond-markets-tokenization-tacfinance-bondsmeta-requirementsecurities+2

design-knowledge/bond-markets-tokenization-tac-mr4

MR-4 - Reduce dependency on CSDs

Every securities transaction inevitably has to use the services of Central Securities Depositories (CSDs) or delegated depository banks along the clearing and settlement chain, creating a centralized bottleneck. The prototype shall avoid such central intermediaries if possible.

bond-markets-tokenization-tacfinance-bondsmeta-requirementsecurities+2

design-knowledge/bond-markets-tokenization-tac-mr5

MR-5 - Reduce market barriers

The denomination of a bond issuance usually starts at 1000 euros to be economically feasible, excluding some groups of investors from investing in bonds; trade processing is also restricted to business days. The prototype shall reduce market barriers for all participants.

bond-markets-tokenization-tacfinance-bondsmeta-requirementsecurities+2

design-knowledge/bond-markets-tokenization-tac-mr6

MR-6 - Provision of secondary markets

Bonds are usually traded on OTC markets rather than on exchanges, as most bondholders are institutional investors, and secondary markets for trading bonds remain insufficient. The prototype shall provide sufficient secondary markets.

bond-markets-tokenization-tacfinance-bondsmeta-requirementsecurities+2

design-knowledge/bond-markets-tokenization-tac-mr7

MR-7 - Reduce room for opportunistic behavior

Information asymmetries can be found in many aspects of the bond token market; potential issuers often lack financial and credit history, counterparty and settlement risks exist, and processes are not transparent, hindering traceability and auditability. The prototype shall reduce information asymmetries as much as possible.

bond-markets-tokenization-tacfinance-bondsmeta-requirementsecurities+2

Publication metadata

Additional metadata represented in the current library record.

Show additional metadata

{
  "type": "paper",
  "title": "Designing the future of bond markets: Reducing transaction costs through tokenization",
  "description": "Using a transaction-cost-theory lens, the paper identifies seven meta-requirements and derives five design objectives for an Ethereum-based bond prototype, from which it formulates five design principles for blockchain-based bond markets: apply modular design, exploit multi-token standards, automate on-chain payouts, restrict forced-transfer functions to regulators, and implement smart-contract-based crypto securities registers.",
  "resource": "https://doi.org/10.1007/s12525-025-00753-3",
  "authors": "David Cisar, Benjamin Schellinger, Jens-Christian Stoetzer, Vincent Gramlich, Tobias Guggenberger, Nils Urbach, Florian Lennart Weiss",
  "year": 2025,
  "venue": "Electronic Markets 35:9 (2025)",
  "methodology": "Design science research; transaction-cost-theory lens; Ethereum prototype; derivation of meta-requirements, design objectives and principles.",
  "dsr_grid": true,
  "dsr_solution_space": "Instantiation (prototype) plus a design theory (meta-requirements, design objectives, design principles).",
  "tags": [
    "bond-markets-tokenization-tac",
    "finance-bonds",
    "tokenization",
    "transaction-costs",
    "securities",
    "design-science-research",
    "blockchain"
  ]
}