Benefits of DLT Finance

Current Challenges

Off-chain today

Collateral is managed through fragmented, off-chain systems:

• Slow settlement: after a trade or collateral agreement, the actual movement of the asset happens later via back-office instructions between custodians, clearing houses, and depositories. It can take hours or days before everyone’s records align.

• Many intermediaries: a single bond or equity position may pass through brokers, clearing houses (e.g. DTCC, NSCC), global depositories, and local EU infrastructures, each with its own ledger and cut-offs.

ETFs and funds wrap portfolios of assets but inherit many of the same issues:

• Jurisdictional and product fragmentation: different regimes (UCITS, UK authorised funds, US funds, etc.) use different infrastructures and intermediaries (transfer agents, administrators, custodians, depositories).

• Opaque processes: most of the ETF lifecycle is hidden inside proprietary systems and is hard to integrate programmatically.

Regulators are starting to formalise a path for fund tokenization. The UK FCA’s consultation paper CP25/28 “Progressing fund tokenisation” sets out how existing fund structures could issue tokenized units while staying within the current regulatory framework.

Tokenized Collateral

With tokenized collateral, an existing asset in custody is mirrored on-chain as a token:

• On-chain mirror, off-chain custody The legal asset (for example, a bond at a custodian or CSD) stays where it is today. On-chain, a token represents the economic position and who has the right to use it as collateral.

• Faster, more predictable settlement Transfers of the token are coordinated by a shared synchronization layer across participants’ ledgers. Instead of many separate updates across different systems, ownership moves in a single atomic, synchronized transaction, so all involved parties see a consistent state almost immediately.

• Collateral mobility Once collateral is mirrored on-chain, the same token can be reused across workflows without rebuilding integrations every time. Policies and limits can be encoded in smart contracts instead of scattered across documents and back-office rules.

Tokenized ETFs / Funds

A tokenized ETF or fund records units and key lifecycle events on-chain:

• Units tracked as tokens Each investor holds a token representing their fund units. Issuance, redemption, and transfers are implemented as smart-contract workflows rather than a patchwork of registries and manual updates.

• Aligned with tokenized collateral If the fund’s underlying assets are also mirrored on-chain as collateral tokens, portfolio changes, rebalancing, and funding operations can be expressed as atomic, programmable flows with fewer external reconciliations.

• More transparent and automatable On-chain records provide a clearer, near real-time view of how units are created, redeemed and moved, supporting better risk monitoring and easier integration, while still respecting regulatory constraints.

On-chain ETFs won’t replace all existing fund structures, but they can be especially useful where collateral usage, operational simplicity, and transparency matter.