A Glimpse of Banking's Future, Live on the Ethereum Blockchain

At first glance, this week's move by the investment bank Societe Generale to issue a security token-like bond in which it was both the issuer and the sole investor might seem like a pointless act.

You see, Societe Generale's $112 million bond issue used smart contracts built not a private, permissioned blockchain but on the public, permissionless ethereum blockchain.

Banks have made various arguments for why they feel compelled to use private, permissioned versions of this technology: because they are beholden to know-your-customer and other compliance rules that aren't easily enforced in a permissionless environment; because their competitive interests require a level of privacy that can't be assured in a transparent, public setting; or because public blockchain's probability-based standard for confirming trade settlement falls short of what Wall Street's lawyers call "Settlement finality."

The French bank's move could also signal an acknowledgment that banks' can't afford to turn their back on the disruptive threats and opportunities posed by permissionless protocols such as bitcoin or ethereum.

While the deal was an entirely in-house affair, the bank did make the bond's terms pari passu with its other covered bonds, a category of debt that securitized by specific balance sheet assets.

With a five-year maturity, there is ample time for the bank to take the more radical step of seeking outside buyers in a secondary market sale once it has a blessing from regulators.

STOs still promise to be extremely disruptive to capital markets, with a big impact on investment banks such as Societe Generale.

These are services that investment banks, for the most part, currently provide.

In the end, the savviest banks invested in this new trading and matching technology and, in taking charge of its development, managed to retain a dominant position in capital markets.

The death of banks might well be a thing to celebrate in the future.