By Marius Jurgilas, Chief Executive Officer at Axiology
On 21 September, the Eurosystem launched Pontes, enabling wholesale transactions in tokenised assets to settle in central bank money. Just a week earlier, the Financial Conduct Authority published industry feedback on its work with the Bank of England on tokenisation in UK wholesale markets. Most respondents supported the proposed approach, with post-trade identified as the main opportunity, with a joint tokenisation roadmap due later this year.
The decision comes at a time when technologies such as blockchain continue to change how financial-market functions are carried out. Tokenisation has generated plenty of momentum, and there is so much discussion happening on the potential of next-gen decentralised systems (Web3) or the reliability of traditional Web2 models for firms to stick to.
Tokenisation’s real progress is not happening in fully decentralised, permissionless models, but instead happening in the hybrid layer of Web2.5. This is where distributed ledger infrastructure meets the regulated, institutional-grade frameworks that capital markets already rely on. This combination will be critical in shaping the decisions financial firms make over the coming years.
The leading tokenised assets are proving the point
Tokenised US Treasuries alone have grown to around $15bn, with BlackRock’s BUIDL, Franklin Templeton’s BENJI platform and Ondo’s USDY among the most cited examples of on-chain finance at scale. These products demonstrate how public blockchain infrastructure can be used within structured, regulated financial products rather than as an alternative to them.
For institutional decisionmakers, DLT is simply an infrastructure upgrade to boost operational efficiency, improve access and enable new programmable use cases. The goal is to modernise the underlying rails while keeping regulatory compliance non-negotiable.
Regulation is about building support
Regulatory frameworks are increasingly being designed to accommodate tokenised financial instruments within existing market protections. In the EU, the DLT Pilot Regime provides a controlled framework for the trading and settlement of tokenised financial instruments. MiCA is also fully applicable, but it governs crypto-assets rather than tokenised securities, which remain subject to existing securities legislation. In the UK, the Bank of England’s Digital Securities Sandbox provides a live regulated environment in which firms can develop the issuance, trading and settlement of digital securities.
These regulatory developments are not in resistance to DLT, but have been implemented to ensure that its use does not come at the expense of investor protection, market oversight or financial stability.
Institutional demand sets the terms
The buyers writing real tickets into on-chain assets are asset managers, corporate treasuries, pension funds and private banks, the same professionals that have always driven primary market volume within traditional finance. They have plenty of interest in what distributed ledger infrastructure delivers, including T+0 settlement, programmability, transparency and operational efficiency. However, they will not sacrifice appropriate custody arrangements, applicable investor protections or access to supervised venues to earn these benefits. Their investment mandates and compliance frameworks won’t allow it to happen.
This shapes everything about what viable on-chain market infrastructure must look like. The technology must meet institutional requirements, rather than the other way round.
It is also why wholesale markets are the natural starting point. Pontes brings central bank money settlement into wholesale DLT markets, while the retail digital euro remains a later step. The potential reach of retail central bank money is mighty, but for now it is wholesale markets where this infrastructure is moving into live, regulated use.
The ‘best of both worlds’ solution for finance firms
The challenge for capital markets right now is finding the correct balance of Web3 functionalities alongside reliable Web2 functionalities of traditional finance.
Full Web3 protocols face barriers to institutional adoption, including last mile connectivity, regulatory uncertainty, custody concerns and the absence of appropriate legal frameworks. Pure Web2 organisations face their own challenges, including legacy infrastructure, limited programmability and settlement processes that were built for a world of T+2 and manual settlement. Neither model on its own is likely to meet the needs of institutional markets over the coming decade.
For traditional finance institutions, distribution remain a key part of the customer-facing financial infrastructure. Issuance, KYC, reporting, investor servicing and reconciliation still take place through banks, brokers and registrars. These functions underline the continuing role established financial institutions play across capital markets.
Web2.5 is the merger of those two approaches and can provide a ‘best of both worlds’ solution for firms including regulated licence stacks combined with built-in ledger infrastructure, institutional-grade compliance delivered through programmable settlement rails, and customer-facing services that continue to rely on established financial institutions.
What remains to be settled is how far and how quickly this hybrid model becomes the default for capital markets and which market participants will have positioned themselves to benefit from it. The binary framing, legacy Web2 on one side, fully decentralised protocols on the other, is becoming harder to justify because the structural shift underway doesn’t map neatly onto either. Firms that haven’t revisited that assumption recently may find the market has quietly moved on without them.
The opportunity lies in this middle ground. Regulated and institutionally credible, while using infrastructure that can make capital markets more efficient.