Lloyds Banking Group (Lloyds), Aberdeen Investments, and Archax announced they’ve used blockchain for tokenized real-world assets (RWAs) as collateral in the UK after completing a pilot that “lays the foundation for scaling tokenized collateral solutions”, according to a company statement.
Tokenized units of Aberdeen Investment’s money market fund (tMMF) and tokenized UK gilts were used as collateral for foreign exchange (FX) trades between Aberdeen and Lloyds. These digital tokens were issued, transferred, and held by Archax, a UK digital asset exchange regulated by the Financial Conduct Authority (FCA), on the Hedera Hashgraph public permissioned blockchain.
The UK trades $5.4 trillion in FX and interest rate derivatives daily, accounting for half of global activity. This trade demonstrates that regulated digital assets can serve as collateral in this market. Digital assets can be programmed to automatically follow the rules of trading agreements streamlining the margining process, reducing operational costs, enhancing collateral efficiency, and minimizing counterparty risk.
Wider adoption of tokenized funds as collateral could also help reduce systemic risk during periods of market stress by enabling digital transfers instead of forced asset sales, thereby reducing volatility.
Emily Smart, chief product officer for Aberdeen Investments, said in a statement that the trade demonstrates real-world application of on chain collateral movements using tokenized assets and the ability of digital assets to streamline processes and increase efficiency.
Peter Left, head of Digital Finance at Lloyds Banking Group, said in a statement: “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 tokenization can enhance collateral efficiency, reduce friction, and unlock new trading opportunities.”
Graham Rodford, CEO and co-founder of Archax, said in a statement: “This latest use-case for Nest, our permissioned DeFi collateral transfer network, highlights the power of regulated digital infrastructure to support institutional-grade needs.”
An expected next step will be to scale the use of tokenized RWAs as transferable collateral.