The ECB Unveils Its Plan to Tokenize Financial Markets

The ECB Aims to Build a European Market for Tokenized Assets

The European Central Bank (ECB) aims to use tokenization as a lever to unify the continent's financial markets. On Wednesday, Piero Cipollone, a member of the institution's board, presented in Frankfurt his roadmap for developing tokenized finance in Europe.

The starting observation is that the market is still very fragmented. Europe has 31 central securities depositories, 14 clearing houses, and 323 trading platforms. In 2023, over 95% of securities transactions were settled within a single local depository. Cross-border operations remain therefore a minority.

For the ECB, tokenization offers the opportunity to rethink this architecture rather than simply adding new technologies to existing infrastructures.

Pontes and Appia, the Two Pillars of the ECB

The strategy relies on two complementary projects. The first, Pontes, is designed to meet immediate needs. It will connect platforms using distributed ledger technology (DLT) to the TARGET Services of the Eurosystem.

The goal is to allow the settlement of tokenized assets directly in central bank money. Securities and payment can be exchanged simultaneously under the principle of "delivery versus payment": either both sides of the transaction are executed, or neither is.

The launch of Pontes is scheduled for September 21, according to Crowdfund Insider. Clearstream, SWIAT, Cashlink, and Axiology are expected to be among the first operators.

The second project, Appia, focuses on the longer term. By 2028, it aims to result in a master plan for an integrated European ecosystem of tokenized assets, covering interoperability, collateral, legal framework, and infrastructure resilience.

A Market Available 24/7

The ECB plans a gradual ramp-up. Pontes will initially operate according to standard hours before moving to 22.5 hours per business day.

By 2028, the ambition is to achieve an infrastructure available 24 hours a day, 7 days a week, with more programmability and, ultimately, multi-currency capabilities.

However, the ECB identifies several risks. The first would be for each actor to develop its own infrastructure without common standards. Tokenization would then reproduce the fragmentation it is precisely meant to solve.

Another challenge is to maintain central bank money as the reference for transaction settlements. For Piero Cipollone, tokenized markets relying solely on private instruments, such as stablecoins, would introduce additional credit and liquidity risks.

Finally, the ECB wants to avoid excessive dependence on infrastructures or standards developed outside of Europe. Thus, behind tokenization lies also an issue of financial sovereignty and strengthening the international role of the euro.

A Legal Framework Still to Harmonize

The success of the project will ultimately depend on the ability of different platforms to communicate with each other, as well as on cooperation between public and private actors. The ECB can provide the settlement infrastructure and the anchoring in central bank money, while banks, issuers, and intermediaries will need to develop the associated assets and services.

There is also a need to harmonize rules among different European countries, particularly regarding the status of tokenized assets, property rights, or the execution of smart contracts. "An advanced technology cannot compensate for fragmented law," summarizes Piero Cipollone.

For the ECB, the stakes therefore go beyond the simple adoption of blockchain: tokenization could become a means to build a more integrated European capital market, provided that it does not reproduce on digital networks the borders that still fragment traditional finance.