The advent of distributed ledger technology (DLT), particularly blockchain, is fundamentally reshaping the architecture of capital markets. This transformation goes far beyond optimizing isolated processes; it represents a structural shift in how financial systems operate, communicate, and evolve. By automating and streamlining post-trade operations such as settlements, data reconciliation, and collateral management, DLT addresses persistent inefficiencies that have long plagued the global financial ecosystem.
Through the use of shared, immutable ledgers, DLT enables real-time exchange of data and reduces reliance on slow, manual, and error-prone processes. It connects a traditionally fragmented network of custodians, issuers, investors, and intermediaries into a more cohesive and interoperable system.
Reducing Costs and Operational Risks
One of DLT’s most transformative capabilities is its ability to unify record-keeping across participants via a single source of truth. This shared ledger significantly lowers the costs associated with clearing, reconciliation, and settlement. It also enables real-time visibility into asset positions and transactional history, which helps reduce counterparty risk, operational delays, and reconciliation errors.
According to industry projections, integrating smart contracts and automation into post-trade operations could generate annual savings of $15–20 billion across key markets including the United States, Europe, and Asia. These savings result from the elimination of redundant processes, reduction in intermediary roles, and lower risk exposure due to faster and more accurate settlements.
Smart contracts — self-executing agreements coded into blockchain — further enhance the efficiency of these operations by automatically triggering actions based on predefined conditions. For example, a settlement can be executed the moment both parties meet the trade conditions, without the need for human intervention or verification.
Tokenization: Unlocking New Opportunities in Finance
Tokenization — the process of converting physical or traditional financial assets into digital tokens on a blockchain — is driving the next major shift in how we issue, manage, and exchange value. Tokenized assets are programmable, divisible, and transferable 24/7, making them inherently more liquid and accessible than their traditional counterparts.
What sets tokenization apart is its potential to democratize access to previously illiquid or high-barrier investments. For instance, real estate — typically a capital-intensive and low-liquidity asset class — can be tokenized to allow fractional ownership. This enables a broader range of investors to participate and facilitates secondary market trading that was previously impractical.
Beyond real estate, tokenization is being actively applied to bonds, equities, private equity, commodities, and even cash-like instruments. The result is a new class of programmable assets that can be traded more efficiently, settled faster, and integrated across markets with fewer intermediaries.
A prime example is UBS’s uMINT, a tokenized money market fund that offers real-time liquidity and intraday settlement. By using blockchain for cash-like investments, uMINT exemplifies how tokenization can enhance treasury operations, liquidity planning, and intraday financing — areas that were traditionally constrained by banking hours and operational cutoffs.
The Impact on Investment Management
In investment management, DLT is transforming the entire lifecycle of financial instruments. At the issuance stage, it simplifies onboarding, accelerates time to market, and enhances compliance through automated reporting and auditable records. In secondary markets, tokenization boosts liquidity, enables global access, and extends trading windows beyond traditional market hours.
In post-trade operations, DLT facilitates instantaneous settlement (T+0), removes counterparty risk, and supports complex corporate actions (like dividend distribution or voting rights) through smart contract automation. These innovations are particularly impactful in alternative investments, which often suffer from long settlement cycles and poor transparency.
DLT also helps reduce cash drag — the idle time between transaction execution and final settlement — and improves capital efficiency by aligning fund flows more closely with market activity. This makes investment products more responsive to real-time demand and reduces the cost of liquidity for fund managers and investors.
Modernizing Collateral Management
Collateral plays a critical role in ensuring the safety and soundness of financial markets. Yet, in traditional systems, managing collateral across asset classes and transaction types (e.g., repo, CCP, OTC) is often inefficient due to siloed infrastructures, manual reconciliation, and mismatched settlement timings.
DLT addresses these pain points by providing a unified, transparent, and automated environment for collateral management. With delivery-versus-delivery (DvD) and delivery-versus-payment (DvP) mechanisms built into blockchain protocols, institutions can transfer ownership of collateral in real time, reducing counterparty and operational risk.
Smart contracts automate essential margining processes and enable real-time monitoring of collateral positions, improving compliance and responsiveness during periods of market volatility. A real-world application is HQLAx, a blockchain platform that facilitates high-quality liquid asset transfers without requiring the actual movement of securities. This reduces friction, lowers settlement costs, and enhances the ability of institutions to optimize their collateral pools.
Revolutionizing Cross-Border Payments and PvP Settlements
Traditional cross-border payments and foreign exchange (FX) settlements are plagued by time lags, currency mismatches, and multiple layers of intermediaries. Systems like Continuous Linked Settlement (CLS) offer partial solutions but are limited to specific currencies and participants.
With tokenization, especially in the context of PvP (payment versus payment) transactions, it becomes possible to synchronize the delivery of two different assets — such as two currencies — in real time. This eliminates the so-called “Herstatt risk” (the risk that one party defaults before the other has fulfilled its side of the transaction).
As global cross-border transaction volumes are expected to reach $250 trillion by 2027 (up from $150 trillion in 2017), the demand for faster, cheaper, and more transparent solutions is growing rapidly. Blockchain-powered systems enable real-time FX and securities settlements, reduce fees, and provide full traceability for compliance and auditing.
Central bank digital currencies (CBDCs), stablecoins, and tokenized deposits are poised to play a foundational role in this evolution. These digital forms of money can be integrated directly into blockchain-based settlement systems, enabling atomic swaps, minimizing costs, and reducing the need for trusted third parties.
Digital Cash and the Role of Programmable Money
To fully unlock the benefits of tokenization, a reliable and widely accepted digital cash counterpart is essential. CBDCs, stablecoins, and tokenized deposits provide the settlement layer that allows digital assets to be exchanged in a secure, real-time, and trustless environment.
Without native digital money on-chain, the benefits of instant settlement are lost. Traditional off-chain cash settlements reintroduce delays and risks, undermining the efficiency of tokenized asset systems. Therefore, integrating programmable cash on blockchain is critical to ensuring end-to-end automation, transparency, and finality in financial transactions.
Analysts estimate that tokenized digital securities could reach $5 trillion in value by 2030. Realizing this vision will depend on developing robust infrastructure for digital cash and ensuring interoperability with both legacy financial systems and next-generation blockchain platforms.
Notably, 94% of the world’s central banks are actively exploring or piloting CBDCs, with a strong focus on wholesale applications and cross-border use cases. Interoperability and programmability are at the center of these developments, as central banks seek to maintain monetary control while embracing innovation.
The Interoperability Imperative
Despite its advantages, DLT still faces a major hurdle: interoperability. When organizations build blockchain platforms in silos — using different standards and technologies — it creates a fragmented ecosystem that limits connectivity and scalability.
Achieving true interoperability requires standardized protocols, open APIs, and collaborative governance models. Consortium blockchains — where multiple institutions jointly develop and operate shared infrastructure — offer one promising solution. Cross-chain communication protocols further enhance connectivity between different networks, enabling value to flow freely across platforms.
Initiatives such as Project Agora, led by the Bank for International Settlements (BIS) in collaboration with seven central banks, aim to integrate tokenized commercial and central bank money through a unified ledger system. This effort involves over 40 private-sector participants and is designed to modernize cross-border payments, reduce operational complexity, and promote scalability.
Similarly, the Regulated Settlement Network (RSN) has demonstrated the feasibility of real-time, multi-asset settlements using delivery-versus-payment mechanisms. RSN’s tests include tokenized U.S. Treasuries and corporate bonds, proving that compliance and speed are not mutually exclusive.
Toward a More Efficient, Transparent Financial Future
Tokenization and DLT are not just technological trends — they represent a fundamental shift in how capital markets function. By enabling secure, instant, and programmable exchange of value, these technologies promise to make financial markets more efficient, inclusive, and resilient.
The integration of tokenized assets with native digital cash, such as CBDCs or stablecoins, is critical for achieving true real-time settlement. This convergence reduces friction, increases transparency, and builds trust across market participants.
Yet, the success of this transformation will hinge on collaboration — between regulators, central banks, financial institutions, and technology providers. Common standards, interoperable infrastructure, and regulatory clarity are essential to realizing the full potential of tokenization.
Organizations that invest in pilot programs, real-world use cases, and tokenized instruments (such as intraday repos or swap contracts) are already beginning to see the benefits in terms of efficiency, cost savings, and operational agility. The path forward is clear: the financial system of the future will be faster, more transparent, and increasingly digital — and tokenization will be at its core.