- Tokenised markets promise efficiency and liquidity gains, but require strong regulation and infrastructure to scale safely.
- Using central bank money for settlement reduces risk and ensures trust in tokenised financial systems.
The European Central Bank (ECB) has approved tokenising EU capital markets, a bulletin revealed. According to the ECB’s latest Macroprudential Bulletin, Distributed Ledger Technology (DLT) could boost efficiency, liquidity, and integration across the European Union.
Tokenisation enables all-or-nothing settlement, allowing the full life cycle of a transaction issuance, trading, settlement, and custody to take place in a single digital environment.
However, the ECB emphasizes that these benefits will depend on aspects such as the use of central bank money for settlement, interoperability, and a robust regulatory framework.
The ECB shared in a statement that tokenisation and DLT are “moving from concept to early-scale deployment,” adding that the benefits will “only be realised safely if European policy action keeps pace.”
The central bank notes that tokenisation is in its early adoption with the potential to modernise issuance and settlement systems.
Early data also suggest tokenised bonds could lower borrowing costs and enhance market efficiency, despite these gains remaining uncertain at scale.
See Related: Invictus Capital spearheads the world’s first regulated and tokenised mutual fund
Why Settlement In Central Bank Money Matters For Tokenised Markets
The primary condition highlighted by the ECB is the use of central bank money for settlement in tokenised markets. This initiative could reduce counterparty risk and ensure transactions remain stable during periods of stress.
According to the Bank for International Settlements, the settlement in central bank money is critical for maintaining trust in financial infrastructure. Without it, tokenised systems could depend on private stablecoins, introducing new risks.
Ensuring a secure settlement layer is essential as tokenised assets move towards wider adoption across EU capital markets.
