ECB Tokenisation Strategy: How Pontes and Appia Will Transform European Capital Markets

Why the ECB Is Betting on Tokenisation for Capital Markets

In a landmark speech at the Central Bank of Ireland’s Financial System Conference 2025, ECB Executive Board member Piero Cipollone laid out the most comprehensive vision yet for how distributed ledger technology and tokenisation will reshape European capital markets. The speech represents a decisive moment in European financial policy, signalling that the Eurosystem is no longer merely observing DLT innovation — it is actively building the infrastructure to support it.

The urgency stems from three converging imperatives. First, preserving European sovereignty in a digital financial landscape increasingly dominated by US-dollar denominated stablecoins. Second, fostering innovation in capital markets that have long lagged behind their American counterparts in efficiency and integration. Third, advancing the savings and investments union — a long-standing EU goal that tokenisation could finally make practical. These imperatives demand a coordinated European response involving shared infrastructure, euro-denominated settlement assets, and EU-wide regulation. For a deeper look at how central banks are evolving their digital strategies, explore our interactive library on financial innovation.

Understanding DLT and Tokenisation Fundamentals

Distributed ledger technology manages and maintains a decentralised database, allowing information to be shared and kept synchronised across a network of participants. Unlike traditional centralised databases controlled by a single entity, DLT distributes the record-keeping function across multiple nodes, creating redundancy and transparency in transaction processing.

Tokenisation builds on DLT by converting or issuing assets as programmable tokens that carry their ownership record and operating rules on the distributed ledger. Each token contains two core elements: asset information — what the asset is, who issued it, and who owns it — and rules encoded as smart contracts that define what can and cannot be done with the asset. This programmability enables automation that was previously impossible in traditional financial infrastructure.

The expected benefits are substantial. Trading, settlement, and custody can occur on the same platform, eliminating the complex chain of intermediaries that currently adds cost and delay. Operations can run 24/7/365, breaking free from the business-hour constraints of legacy systems. Smart contracts can automate processes between issuers and investors that currently require manual intervention. Perhaps most importantly, a shared DLT platform could lower barriers to entry, enabling small and medium-sized enterprises to access capital markets that have traditionally been the domain of large corporations with the resources to navigate complex issuance processes.

The ECB Digital Asset Taxonomy Explained

Cipollone presented a comprehensive classification framework that brings clarity to an often confusing digital asset landscape. The taxonomy divides digital assets into two fundamental categories: settlement assets and trading or investment assets.

Settlement assets are those accepted for final settlement of an obligation. On the public side, this includes central bank money for both retail and wholesale digital transactions. On the private side, it encompasses tokenised deposits and stablecoins. Each carries different risk profiles and regulatory implications that Cipollone examined in detail.

Trading or investment assets include tokenised traditional assets — financial instruments like bonds and equities represented on DLT, as well as tokenised non-financial assets — and unbacked crypto-assets like Bitcoin and Ether. This distinction matters enormously for regulation because a tokenised bond on a DLT platform remains economically a bond, carrying the same rights and obligations regardless of the technology used to record ownership.

The taxonomy also reveals why the ECB views central bank money as the indispensable anchor for the entire digital asset ecosystem. Without a risk-free settlement asset denominated in euros available on DLT platforms, the market remains fragmented across competing private settlement solutions, each carrying counterparty risk and liquidity constraints that central bank money inherently avoids. Research from the Bank for International Settlements on tokenisation confirms this assessment.

European Sovereignty and Digital Asset Infrastructure

Developing a European market for digital assets is not merely a matter of technological innovation — it is a strategic imperative for the continent’s financial sovereignty. Cipollone identified three essential elements for building this market: EU infrastructure that ensures European platforms can compete with and interoperate with global systems, euro-denominated settlement assets that keep the single currency at the centre of European DLT transactions, and EU-wide regulation that creates a level playing field while protecting against external risks.

The sovereignty dimension becomes critical when examining the rapid growth of US dollar-denominated stablecoins. If these become the dominant settlement medium on European DLT platforms, the euro area could face a situation analogous to dollar dependency in traditional markets — but amplified by the speed and programmability of digital settlement. Foreign-currency stablecoins operating on European platforms could undermine strategic autonomy, compromise monetary sovereignty, and weaken the international role of the euro.

Seven interconnected areas of concern drive the ECB’s engagement: preserving the anchor role of central bank money, managing implications for financial intermediation and stability, ensuring appropriate regulation and banking supervision, maintaining effective monetary policy implementation and transmission, safeguarding payments and market infrastructures, and protecting the international role of the euro. Each of these areas requires active policy intervention rather than passive observation.

Stablecoin Risks: Fragmentation, Intermediation, and Elasticity

The ECB’s analysis of stablecoin risks is among the most granular produced by any central bank, examining threats across three dimensions: currency, jurisdiction, and entity type.

On liquidity fragmentation, the picture is nuanced. Euro-denominated stablecoins could actually add resilience to the EU by providing DLT-native payment rails within the euro area. However, foreign-currency stablecoins — particularly those denominated in US dollars — could fragment European liquidity and create dependencies that compromise monetary sovereignty. The distinction is not about opposing stablecoins categorically but about ensuring the right currency denomination prevails within European markets.

The intermediation risk is structural. Unlike traditional bank deposits, stablecoins require 100% reserve backing, which means they cannot participate in fractional reserve banking. If stablecoin adoption grows significantly, it could trigger retail deposit outflows from banks, weakening the banking system’s ability to extend credit and allocate capital. When stablecoins are issued by non-banks, this intermediation risk is amplified because these entities operate outside the banking regulatory framework.

The elasticity constraint may be the most fundamental limitation. Central bank money can expand and contract with the needs of the economy — this elasticity is essential for monetary policy transmission and crisis management. Stablecoins, bound by their 100% reserve requirements, lack this flexibility entirely. Their expansion is limited by available reserve assets, and their contraction during stress could be abrupt and disorderly. This makes stablecoins unsuitable as a primary settlement medium for large-scale capital market operations. The European Central Bank has published extensive analysis on these systemic implications.

Tokenised Deposits: Bearer vs Non-Bearer Trade-offs

Tokenised deposits represent the digital equivalent of commercial bank money on DLT platforms, and their design involves a fundamental trade-off that goes to the heart of monetary system stability. Cipollone distinguished between two types: transferable bearer tokenised deposits and non-transferable non-bearer tokenised deposits.

Bearer tokenised deposits can be transferred freely between participants, much like physical banknotes. This transferability creates efficiency but introduces a critical risk: their market price may deviate from par value. If a tokenised deposit from Bank A trades at a discount to one from Bank B, it breaks the singleness of money — the principle that one euro is always worth one euro regardless of which institution issued the deposit. This principle is fundamental to monetary stability and public confidence in the financial system.

Non-bearer tokenised deposits solve this problem by restricting transfers to the issuing bank. Without a secondary market, there is no mechanism for price deviation from par. However, this design creates a new problem: moving funds across banks requires a settlement platform. If a customer of Bank A wants to pay a customer of Bank B using non-bearer tokenised deposits, an interbank settlement mechanism must exist — precisely the kind of infrastructure the Eurosystem is building with Pontes and Appia. Discover how institutions are navigating these digital asset challenges in our library.

MiCA Reform: What the ECB Wants Changed

The Markets in Crypto-Assets Regulation (MiCA) was a pioneering piece of EU legislation, but Cipollone’s speech makes clear that the ECB considers it insufficient for the challenges ahead. The ECB recommends three targeted amendments to strengthen Europe’s regulatory framework for digital assets.

The first pillar addresses supervision. The ECB advocates for EU-wide consistent, proportionate, and risk-based supervision of significant crypto-asset service providers. This means centralised oversight — not fragmented national supervision that allows regulatory arbitrage between member states. Enhanced and standardised data reporting at EU level would give supervisors the information they need to identify systemic risks before they materialise.

The second pillar focuses on preserving a level playing field. Third-country multi-issuer stablecoin schemes should not be permissible under EU law, and safeguards should be established as an alternative, in line with the European Systemic Risk Board (ESRB) Recommendation. This prevents foreign entities from operating within EU markets under less stringent rules than their European competitors face.

The third pillar targets foreign-currency stablecoin risks. The ECB recommends assessing the suitability of existing MiCA limits to maintain euro area monetary sovereignty. If current thresholds are insufficient to prevent dollar-denominated stablecoins from capturing significant market share within European DLT platforms, they should be tightened. The European Securities and Markets Authority (ESMA) is expected to play a key role in implementing these enhanced supervisory requirements.

Eurosystem Exploratory Work: €1.6 Billion in Real Transactions

Between May and November 2024, the Eurosystem conducted what is arguably the largest central bank DLT initiative globally. The exploratory work involved 64 stakeholders — including central banks, commercial banks, central securities depositories, and DLT Pilot Regime applicants — from 9 countries across the euro area.

The scale was remarkable: more than 50 experiments and trials were conducted, resulting in over 200 real transactions settled in central bank money with a total value exceeding €1.6 billion. These were not theoretical exercises. Experiments tested mock settlement in controlled environments, while trials involved actual settlement of real financial obligations using central bank money.

Three distinct interoperability solutions were tested, each developed by a different national central bank. The Trigger Solution by Deutsche Bundesbank creates an interface between DLT platforms and the existing TARGET2 settlement system. The TIPS Hash-Link by Banca d’Italia leverages the TARGET Instant Payment Settlement infrastructure to bridge DLT and conventional payment rails. The Full DLT Interoperability solution by Banque de France operates entirely within a DLT environment, enabling direct settlement without relying on legacy systems as an intermediary.

The success of this exploratory work demonstrated not just technical feasibility but market demand. Stakeholders consistently identified the lack of central bank money provision on DLT platforms as the major impediment to ecosystem growth. The market wants to build on DLT — but it wants to settle in the safest, most liquid asset available: central bank money.

Pontes Platform: Europe’s DLT Settlement Bridge for 2026

Pontes — the Eurosystem’s near-term DLT settlement solution — represents the direct product of the 2024 exploratory work. Scheduled to launch in Q3 2026, it combines the best features of all three tested interoperability solutions into a unified platform that links DLT platforms with TARGET Services.

The platform operates on a dual-settlement model that offers flexibility to market participants. Transactions can be settled either with cash tokens on the Eurosystem DLT platform or through T2, the Eurosystem’s real-time gross settlement system. This dual approach means that participants already connected to TARGET can continue using familiar settlement channels while also accessing DLT-native settlement when they choose.

A key capability is delivery versus payment (DvP) — the simultaneous exchange of securities and cash that eliminates settlement risk. In traditional markets, DvP requires complex coordination between securities settlement systems and payment systems. On Pontes, both legs of the transaction can occur on the same infrastructure, or one leg can occur on DLT while the other settles in T2.

Post-launch enhancements will progressively expand Pontes’ capabilities. The platform will align with operational, legal, and technical standards of TARGET Services, ensuring institutional-grade reliability. 24/7 availability for the Eurosystem DLT operation and settlement will break free from traditional business-hour constraints. Most ambitiously, decentralised programmability will enable market participants to deploy automated smart contracts directly on the Eurosystem DLT — opening the door to innovative financial products and processes that are not possible on current infrastructure. Learn how other institutions are preparing for this shift in our interactive library.

Appia Initiative: The Long-Term Vision for Digital Markets

While Pontes addresses immediate market needs, the Appia initiative represents the Eurosystem’s vision for a fully integrated European digital asset ecosystem. The initiative explores two potentially complementary approaches.

The first approach envisions a European shared ledger that brings together central bank money, commercial bank money, and other assets on a single platform. This would create an environment where all forms of money and assets coexist on the same infrastructure, enabling seamless interactions and eliminating the fragmentation that currently characterises the European DLT landscape.

The second approach focuses on building a European network of interoperable platforms. Rather than concentrating everything on a single ledger, this model would allow multiple specialised platforms to coexist while ensuring they can communicate and transact with each other seamlessly. This approach offers more flexibility and resilience through diversity but requires robust interoperability standards.

Crucially, Appia includes an international dimension. Cross-border settlement between European and non-European DLT platforms, and interactions with infrastructures in other jurisdictions, are part of the design. This positions Europe not as an isolated digital asset market but as a connected hub in a global network of DLT-based financial infrastructure.

The conditions for success are clear: interoperability and standardisation across platforms, compatibility between applications across the entire value chain, and fostering competition to prevent monopolistic lock-in. The ultimate goals are to increase safety and efficiency across the financial ecosystem, drive market integration and competition within Europe, and strengthen the international role of the euro while ensuring global connectivity. Together, Pontes and Appia form a coherent strategy — the first addressing immediate market demand for central bank money settlement on DLT, and the second building toward a comprehensive digital financial ecosystem that could redefine how European capital markets operate for decades to come. The ECB Market Infrastructure Board continues to publish updates on both initiatives.