Building Europe’s tokenised financial markets infrastructure

Piero Cipollone, Member of the Executive Board of the ECB, delivered a keynote speech at an event hosted by the House of the Euro on building Europe’s integrated digital asset ecosystem.

European tokenised capital markets have advanced from exploration to production, with issuers placing nearly €4 billion in DLT-based fixed-income instruments since 2021, including digital sovereign debt by EU Member States. The Eurosystem’s 2024 work involved transactions worth approximately €1.6 billion across nine jurisdictions, including real settlements in central bank money.

Tokenisation involves issuing or representing assets as digital tokens on DLT networks, enabling the full transaction lifecycle within a single digital environment, with smart contracts automating processes such as payments and compliance.

Europe has established regulatory frameworks through the Markets in Crypto-Assets Regulation (MiCA) and the DLT Pilot Regime, positioning it as a leader in tokenised assets. However, two main obstacles hinder scaling: platform fragmentation and the lack of a common, trusted on-chain settlement asset.

Platform fragmentation results from multiple DLT networks operating without interoperability, increasing costs and reducing liquidity. The absence of a central bank digital settlement asset means transactions may involve assets with volatility or credit risks, limiting market growth.

To address these issues, the Eurosystem is developing Pontes, a bridge for market DLT platforms to settle in central bank money, launching in Q3 2023. It will evolve with features like settlement finality, 24/7 operation, and smart contract use.

The Appia roadmap, published on 11 March, outlines a long-term blueprint for a European tokenised financial ecosystem by 2028. It focuses on standards, interoperability, collateral management, cross-border connectivity, and legal frameworks, assessing configurations like shared or interconnected ledgers.

Pontes and Appia are integrated initiatives, with Pontes serving as a core component of the Appia ecosystem. Their development involves continuous feedback from market participants, regulators, and academia.

A second key condition is a strong public-private partnership. The Eurosystem ensures the safety of settlement assets, while market infrastructure, banks, and technology providers develop services and business models. The public consultation on the Appia roadmap invites stakeholder feedback to shape the ecosystem.

The third condition involves a comprehensive legal framework. Distributed ledger technology cannot harmonise laws across 27 Member States, and legislative work is necessary to reduce post-trade fragmentation and enable seamless asset transfer. The Appia roadmap emphasizes assessing legal gaps and promoting harmonisation, with proposals like the extension of the DLT Pilot Regime and the EU’s corporate law directives.

In conclusion, Europe is making progress in tokenised finance, with market activity, regulation, and central bank initiatives advancing. Overcoming obstacles requires collaboration among policymakers, market participants, and regulators to align technological and legal ambitions. Europe has the capacity to build a unified digital financial market alongside its single currency.

The foundations are in place; the next step is to seize this moment.