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Blockchain technology and the transformation of capital markets

How tokenization is opening new opportunities in financial markets

Authors:

Carlos Navarro Fernandez: EMEA Blockchain & Digital Assets Leader, Blockchain & Digital Assets, Deloitte Spain
Álvaro Martínez Arce: Manager, Blockchain & Digital Assets & Capital Markets Specialist, Blockchain & Digital Assets, Deloitte Spain

Performance Magazine Issue 46 - Article 3

To the point

  • Tokenization through distributed ledger technology (DLT) improves liquidity and broadens access to various asset classes, such as real estate and investment funds.
  • DLT is transforming financial markets by simplifying post-trade operations and enabling real-time data exchange among custodians, investors, and intermediaries.
  • Cash-on-ledger frameworks ensure real-time, secure settlements, bridging blockchain and traditional systems.
  • Collaboration and interoperability are critical to fully unlocking the potential of tokenized financial systems.

Introduction


Distributed ledger technology (DLT) is not just reshaping isolated processes within the capital markets, it is revolutionizing the foundational structure of how financial systems operate. By transforming post-trade operations such as settlement, collateral management, and data reconciliation, DLT is bridging gaps that have long fragmented the financial ecosystem. This technology simplifies the complex structure of interactions between custodians, issuers, investors, and intermediaries by enabling real-time information exchange and reducing the reliance on manual processes.

One of DLT's most compelling contributions lies in its ability to unify financial records through a single shared ledger while also drastically reducing clearing and settlement costs. By eliminating redundancies, automating reconciliation processes, and minimizing operational risks, DLT addresses some of the most expensive and time-intensive challenges in financial markets. Notably, the integration of smart contracts and automated processes within clearing and settlement activities is projected to generate global infrastructure operational cost savings of approximately USD 15–20 billion annually1 (including US, Europe and the main markets).

The vision for tokenized digital assets adds another layer of innovation. With features such as instant collateral mobility, continuous global access, and integration across asset classes, tokenization offers a blueprint for the financial services of tomorrow. Industry leaders like Larry Fink of BlackRock have emphasized this transition, predicting a future where all assets—stocks, bonds, and beyond—exist on a unified ledger2. The rapid scaling of tokenized products, from bonds and funds to private equity and even cash, underscores the importance of DLT in driving the next evolution of capital markets. As adoption grows, DLT is moving beyond experimentation and into practical implementation, setting a new standard for efficiency, accessibility, and innovation in global financial markets.

Use cases: Blockchain in investment management


DLT is transforming the entire lifecycle of securities, from issuance to post-trading. In the primary market, it enables faster issuance through shared data accessibility and process automation. In secondary markets, it enhances liquidity through fractionalization, extends trading hours, and broadens access to select asset classes. Finally, in post-trading, it reduces risks, allows for instant settlement (T+0), and streamlines corporate actions using smart contracts. There are a variety of opportunities and related use cases in the capital markets:


Tokenization: A new era in funding and investing


The tokenization of assets goes beyond merely replicating traditional processes on blockchain to reduce costs; for example, it unlocks new opportunities by making historically illiquid and difficult-to-trade assets, such as real estate, more accessible and functional. In the case of real estate, tokenizing properties allows for fractional ownership, enabling participation by investors with smaller capital while increasing liquidity through seamless transactions on secondary markets. Tokenization's potential reaches far beyond the real estate sector, finding increasing application in investment vehicles such as money market and alternative investment funds. A notable example is UBS's introduction of its tokenized Money Market Investment Fund (uMINT), which underscores a significant movement towards embracing tokenization within asset management3.

In investment funds, tokenization addresses inefficiencies in money market funds (MMFs) by enabling real-time liquidity through intraday repos. Traditional overnight repos, fixed at 24-hour terms, often misalign with actual liquidity needs, forcing borrowers to incur costs for unused time. DLT facilitates secure, immediate transactions, allowing settlements within minutes or hours as needed, thereby avoiding additional costs associated with liquidity and asset transfers. By reducing reliance on intermediaries and synchronizing cash flow with demand, tokenization transforms MMFs into more adaptable and cost-efficient capital management tools, enhancing trust and operational efficiency.

Finally, tokenization's adaptability enables its application across various asset classes, such as bonds, equities, ETFs, loans, ETNs, listed stocks, derivatives, and precious metals. Nevertheless, the existing regulatory frameworks and infrastructure within capital markets can obscure the benefits of tokenization, hindering the realization of its advantages like cost savings and operational improvements. Despite these obstacles, tokenization continues to drive innovation in financial markets, promoting increased accessibility and novel approaches to asset management and exchange.

Collateral Management


Financial institutions struggle with in collateral management because of disconnected custody networks and siloed operations. Collateral is often managed separately based asset types (e.g., equities, fixed income, derivatives) and transaction types (e.g., ECMS, CCP, OTC), resulting in operational inefficiencies and redundant processes.

These silos, coupled with reliance on market closing times and non-simultaneous settlement systems, increase complexity, limit flexibility, and elevate counterparty risk. Additionally, reconciliation and monitoring across multiple CCPs globally require redundant databases and applications, further driving up costs. These inefficiencies are estimated to cost a global market participant €50–100 million annually4.

Tokenization addresses inefficiencies in collateral management by enabling instantaneous transfers via a centralized DLT network, which streamlines reconciliation and dispute management processes. With features like delivery versus delivery (DvD) settlement, DLT ensures simultaneous and secure transactions, reducing counterparty risk. Additionally, smart contracts automate critical processes such as margin calls and provide real-time monitoring, guaranteeing adequate collateral coverage throughout the lifecycle of a transaction.

An example of this is HQLAx, a platform that leverages digital collateral records (DCRs) to simplify collateral management. By enabling ownership transfers without the physical movement of securities, HQLAx reduces operational friction, lowers settlement costs, and improves control over collateral exchanges3. This approach shows how blockchain-driven solutions can effectively address long-standing inefficiencies in collateral management.

Tokenization in payment versus payment transactions


Tokenization is also revolutionizing payment versus payment (PvP) transactions by solving key inefficiencies in traditional systems. PvP models, particularly in cross-border financial activities, rely on international agreements and intermediaries like continuous linked settlement (CLS), a global payment system designed to reduce settlement risk in foreign exchange (FX) transactions, and ICSDs for cross-border securities. These systems are limited in scope, covering only certain currencies, assets, and participants, making processes slow, unclear, expensive, and risk exposure.

Cross-border transaction values are expected to climb to $250 trillion by 2027, up from $150 trillion in 20175, underscoring the clear necessity for modernization. Tokenized assets offer transformative solutions by enabling real-time, synchronized settlements that eliminate reliance on intermediaries.

For instance, in FX, tokenization ensures the simultaneous exchange of currencies, eliminating counterparty risk and enhancing settlement speed. Furthermore, the adoption of central bank digital currencies (CBDCs), deposit tokens, and stablecoins can significantly improve cross-border transactions by enabling near-instant settlement, offering greater transparency through end-to-end visibility, and reducing transaction costs, including intermediary fees. These advancements address key pain points for financial institutions and corporate clients, streamlining cross-border payments and boosting overall efficiency.

The importance of the cash leg in digital finance


Integrating a reliable cash-on-ledger framework is essential for unlocking the potential of tokenized assets. This framework enables the secure, real-time settlement of transactions by facilitating the exchange of digital assets with currencies such as CBDCs, stablecoins, and deposit tokens. It reduces counterparty risks, strengthens trust in financial systems, and bridges gaps between legacy and blockchain infrastructures. Analysts forecast up to $5 trillion in tokenized digital securities by 20306, highlighting the critical role of cash legs in achieving efficiency, transparency, and scalability in financial ecosystems. Moreover, 94% of central banks are actively exploring CBDCs, according to the Bank for International Settlements, with a focus on interoperability and programmability for wholesale applications7. These developments underscore the growing importance of cash-on-ledger frameworks in a rapidly maturing digital economy.

The challenge of interoperability


Interoperability is a significant challenge in blockchain technology, particularly when individual entities develop isolated DLTs without standardized protocols. This fragmentation hinders integration with traditional financial systems, leading to inefficiencies and operational complexities. To address these issues, collaborative efforts through consortia and technological solutions are essential. Consortium blockchains enable multiple organizations to collaborate on shared platforms, improving data sharing and transaction efficiency, while cross-chain communication protocols enhance interoperability between different blockchain networks.

Initiatives such as Project Agora and the regulated settlement network (RSN) exemplify progress in bridging these gaps. Project Agora, led by the Bank for International Settlements (BIS) and seven central banks, aims to integrate tokenized central bank and commercial bank money through a unified ledger, fostering scalability and interoperability. With over 40 private-sector participants, it focuses on modernizing cross-border payments and reducing operational friction8. Similarly, the RSN has demonstrated how real-time, multi-asset settlement can be achieved through delivery versus payment (DvP) mechanisms, ensuring compliance and efficiency in the settlement of tokenized assets such as U.S. treasuries and bonds9. These efforts mark significant strides in addressing interoperability, laying the groundwork for more connected and efficient financial systems.

Conclusion
 

  • Cash-on-ledger frameworks are critical for bridging tokenized assets and traditional systems, ensuring secure and instant settlement. Their role in DvP highlights their importance in strengthening trust and reliability across markets
  • Interoperability remains a fundamental challenge, requiring standardized protocols and collaborative frameworks to address fragmentation in DLT networks. Initiatives like consortium blockchains and interoperable settlement systems are instrumental in overcoming these barriers.
  • Collaboration between public and private entities is essential to establish common standards, ensure compliance, and streamline processes, fostering widespread adoption of tokenized systems.
  • Tokenization's full potential lies beyond cost reduction and pilot programs. By investing in the transformation of real-world processes, such as using tokenized money market funds for collateral management in derivatives markets like intraday repos and perpetual swaps, organizations can unlock new efficiencies and opportunities, showcasing the broader impact of this technology.

 

 

1 Global Financial Markets Association (GFMA). (2023, May 17). The impact of distributed ledger technology in global capital markets. GFMA. https://www.gfma.org/policies-resources/gfma-publishes-report-on-impact-of-dlt-in-global-capital-markets/
2 New York Times Events. (2024, January 24). BlackRock C.E.O. Larry Fink on ESG Investing [Video]. YouTube. https://www.youtube.com/watch?v=PSVpth7uqb4
3 UBS Asset Management. (2024, November 1). UBS Asset Management launches its first tokenized investment fund. UBS. Retrieved from: https://www.ubs.com/global/en/media/display-page-ndp/en-20241101-first-tokenized-investment-fund.html
4 HQLAx. (2024). HQLAx New brochure for website Dec 2024 – Redefining Collateral Mobility. [PDF]. Retrieved from: https://cdn.prod.website-files.com/647085cadeace073b850ba3c/6752c5245abd90149a74af43_HQLA%E1%B5%A1%20New%20brochure%20for%20website%20Dec%202024%20-%20final%20%20-%20%20Read-Only.pdf
5 Bank of England. (n.d.). Cross-border payments. Bank of England. Retrieved Feb 2025, from https://www.bankofengland.co.uk/payment-and-settlement/cross-border-payments
6 Citigroup. (n.d.). Money, tokens, and games. Citigroup. Retrieved Feb 2025, from https://www.citigroup.com/global/insights/money-tokens-and-games
7 Di Iorio, A., Kosse, A., & Mattei, I. (2024). Embracing diversity, advancing together: Results of the 2023 BIS survey on central bank digital currencies and crypto (BIS Papers No. 147). Bank for International Settlements. https://www.bis.org/publ/bppdf/bispap147.pdf
8 Bank for International Settlements. (2024, September 16). Private sector partners join Project Agorá. BIS. Retrieved from https://www.bis.org/about/bisih/topics/fmis/agora.htm
9 Securities Industry and Financial Markets Association (SIFMA). (2024, December). Regulated Settlement Network: Business Applicability Report. SIFMA. Retrieved from https://www.sifma.org/wp-content/uploads/2024/12/RSN-Business-Applicability-Report-FINAL.pdf

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