Key Takeaways:
- The European Central Bank has launched Pontes, a tool that will allow wholesale transactions of tokens to be settled using the bank’s money.
- The ECB states that the system underwent the Eurosystem tests with approximately €1.6 billion over 50 tests in 2024.
- Pontes will gradually increase its features and hours of operation, and complete implementation will be sought for by 2028.
The European Central Bank is now directly backing the infrastructure behind tokenized European financial markets with central bank money. The launch of Pontes gives banks and market infrastructures a new route to settle blockchain-based wholesale transactions using a central-bank settlement asset.
Pontes Connects Tokenized Markets to Central Bank Money
Pontes aims to connect market-based distributed ledger technologies (DLT) platforms with Eurosystem’s existing services TARGET Services. It has a first use to effect settlement of wholesale trades in tokenized assets, without releasing the cash leg into central bank money.
This action comes to light as an important challenge for tokenized finance, especially regarding the full settlement of digital securities without the use of private settlement assets.
The process of tokenization is that of creating a digital representation (token) of financial or real-world assets on DLT networks. It can help to align issuance and trading, settlement and various aspects of the transaction lifecycle, with the help of smart contracts being used at wholesale markets.
Pontes’ exploratory work 2024 contributed to the ECB. In the 50 trials by the Eurosystem in nine jurisdictions, worth of transactions run around €1.6 billion, and participants stated that having easy access to a risk-free finding of the settlement asset is vital for general adoption of DLT-based markets.
Read More: SEC Clears Path for Tokenized Stocks With 5-Year Onchain Trading Exemption
Banks and DLT Operators Join the Initial Rollout
Pontes is rolling out an incremental onboarding process and NOT making a mass consumer launch. An initial cohort of financial firms and DLT operators has already been completely onboarded and can use the system, the ECB said.
It includes a range of banks, like Deutsche Bank, Santander and Société Générale, and market infrastructures like Clearstream and SWIAT. More people are anticipated to join in the next few months.
Pontes Expands Through 2028
As a core basis, the first version of Pontes offers services along with some extra capabilities, which will be expanded over time. The ECB aims to have the system in full use by 2028.
Pontes has a broader Eurosystem plan for tokenized finance too. The complementary Appia initiative is currently going on the longer-term design of an integrated DT-based European financial services ecosystem, with an envisioned blueprint in 2028.
The ECB has also been working like crazy on preparations to hold a small amount of its own assets in such tokenized securities. It plans to complete those purchases using Pontes, which began with euro-denominated bonds issued by public-sector and European supranational entities.
The launch establishes the central bank’s settlement infrastructure at the heart of crypto and tokenized-asset markets, providing institutional participants with yet another infrastructure on which to rely to develop and settle digital asset transactions in Europe.
Read More: SEC Eyes Tokenized Stocks Plan That Could Unlock Trillions in Crypto Trading Markets
