“I don’t have any real political insight, but I expect there is sufficient momentum behind this,” Paul said via WhatsApp. “And I think that as this is now in the remit of HM Treasury, the Bank of England and the Financial Conduct Authority, it doesn’t require much policy intervention to proceed. If anything, I think this could support increased demand for UK debt at an opportune time for the UK government.”
Change in capital flows
Paul said moving sovereign debt up the chain changes how capital flows through the financial system, making it more than a back-office adjustment. Built-in digital bonds allow market participants to settle trades instantly and move security between venues without the delays of traditional market infrastructure.
This programmability is changing the dynamics of the intraday repo markets, a change that market participants believe could free up tens of billions of dollars in free liquidity. Currently, the UK gold market sees total daily trading volumes in excess of £45 billion.
However, one important obstacle remains: the lack of a standardized onchain payment method.
“Santander issued a tokenized corporate bond in GBP way back in 2019, so we’ve been demonstrating that bonds can be tokenized for nearly seven years,” said Jannah Patchay, founder of Markets Evolution. “The challenge then as now was how to settle that bond in the chain using a counterparty risk-free settlement asset, and we don’t yet have a compelling solution.”
