On September 21 local time, the European Central Bank (ECB) announced the launch of Pontes, which settles inter-institutional transactions in tokenized assets using central bank money. The ECB said the same day that it had also begun preparations to invest a small portion of its own funds in tokenized securities.
Tokenization is the issuance or representation of assets such as bonds and funds as digital tokens recorded on distributed ledger technology (DLT). The ECB said public- and private-sector participants in its 2024 trials had indicated that broad use of the technology would require access to central bank money as a risk-free settlement asset. Pontes is a project of the Eurosystem, comprising the ECB and the national central banks of the euro area, and connects market DLT platforms to TARGET services, the euro settlement infrastructure operated by the Eurosystem. It coordinates processing across platforms so that delivery of securities and payment occur together, while final cash settlement is completed in T2, the real-time gross settlement system. Market participants are limited to institutions with access to T2, and operators of DLT platforms seeking a connection must also meet specified eligibility requirements, including authorization and supervision.
According to the ECB, 13 market participants, including Deutsche Bank and the European Investment Bank, and four DLT operators, including Clearstream and SWIAT, have completed onboarding and are ready to use Pontes immediately. Deutsche Bundesbank is also participating as a market participant. Pontes will initially provide core services, with functionality and operating hours to be expanded in stages toward expected full implementation by 2028. Alongside Pontes, the Eurosystem is pursuing the Appia project to develop a blueprint for a DLT-based financial ecosystem by 2028.
The ECB's initial investments will target euro-denominated tokenized securities issued by central, regional, or local governments and agencies in the euro area, as well as European supranational institutions. Payments for purchases are expected to settle through Pontes in central bank money. The ECB said direct investment would let it gain end-to-end experience spanning trade execution, settlement, and system and portfolio management. Its own-funds portfolio is managed separately from monetary-policy assets and generates income used to cover ECB operating expenses other than costs related to supervisory work. After preparations are complete, the Executive Board will decide the detailed operating arrangements and timing of the investment. The announcements did not state whether any transaction occurred on the day Pontes launched, the amount settled, or the amount the ECB will invest.