Lloyds Banking Group, Aberdeen Investments and Archax, the FCA-regulated exchange, broker, and custodian for digital assets, have completed a landmark foreign exchange (FX) trade using tokenised real-world assets as collateral, marking a first for the UK financial sector.
The pilot transaction involved the use of tokenised units of Aberdeen’s money market fund and UK gilts as collateral for FX trades between Lloyds and Aberdeen. The digital tokens were issued and settled by Archax on the Hedera Hashgraph blockchain.
This development signals a potential shift in collateral management practices, with tokenised assets offering automated compliance with trading agreements, streamlined margining, and improved operational efficiency. It also aims to reduce counterparty risk and enhance collateral flexibility.
“We’ve tokenised money market funds for two primary reasons,” says Simon Barnby, Chief Marketing Officer of Archax, in conversation with TradingTech Insight. “First, it allows people holding assets in the digital world to invest without having to move their funds in and out of the traditional fiat banking system. It keeps everything native to that environment. The second reason is that once a fund is in token form, it can be used for other things. For example, financial institutions constantly move money between themselves to satisfy margin payments, and using banking systems for this can be frustratingly slow. However, when institutions like Lloyds Bank and Aberdeen agree that a tokenised money market fund is an acceptable form of collateral, they can suddenly move value around 24/7, instantaneously. There’s no need to use traditional rails. It’s all natively digital, which makes it far more efficient, cost-effective, and simpler. Furthermore, these tokens are programmable via smart contracts, so you can embed trading logic directly into them to create intelligent assets.”
He continues: “In this instance, Lloyds Banking Group and Aberdeen wanted to execute a live FX trade using tokenised money market funds and gilts as collateral. This wasn’t a proof of concept; they wanted to test it in a real-world application. To do so, they needed a regulated partner to manage the entire process. That’s where we came in. We hold the underlying traditional instruments, create the digital tokens that represent them, and provide secure custody. Our Nest Network then provides the controlled environment for these institutions to move the tokens between themselves, with full monitoring capabilities. At its core, we’ve built a digital network for the transfer of collateral.”
The UK, which processes approximately $5.4 trillion in FX and interest rate derivatives daily – around half of global volumes – stands to benefit significantly from the broader adoption of tokenised collateral. In particular, the technology may help reduce systemic risk by allowing for more efficient asset transfers during periods of market volatility, potentially avoiding forced asset sales.
The development brings together two of the UK’s largest financial institutions and a regulated fintech, signalling growing momentum behind the integration of blockchain into mainstream financial infrastructure. The success of the pilot is expected to pave the way for wider implementation of tokenised collateral solutions.
Emily Smart, Chief Product Officer, Aberdeen Investments, commented: “Tokenisation has long been seen as a key enabler in the new world of digital innovation. That’s why we are delighted to collaborate with Lloyds and Archax, to demonstrate real-world application of on chain collateral movements using tokenised assets. This demonstrates the ability of digital assets to streamline processes and increase efficiency.”
Peter Left, Head of Digital Finance at Lloyds Banking Group, added:?“This groundbreaking initiative proves that digital assets can be used in regulated financial markets under existing legal frameworks here in the UK. It’s a major step forward in demonstrating how tokenisation can enhance collateral efficiency, reduce friction, and unlock new trading opportunities.”
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