Lloyds
Banking Group and Aberdeen Investments completed what they’re calling the first
use of tokenized real-world assets (RWAs) as collateral for foreign exchange
(FX) trades in the UK, working with digital asset exchange Archax to handle the
transactions.
Lloyds, Aberdeen Test
Digital Assets as FX Collateral
The pilot
program used digital tokens backed by UK government bonds and units from
Aberdeen’s money market fund as collateral for currency trades between the two
firms. Archax, which holds regulatory approval from the Financial Conduct
Authority (FCA), processed and stored the digital tokens on the Hedera
Hashgraph blockchain.
The test
comes as UK financial institutions explore ways to reduce trading costs and
streamline operations. The country’s daily foreign exchange and interest rate
derivatives trading volumes reach $5.4 trillion, representing roughly half of
global activity in these markets.
“Digital
assets can be used in regulated financial markets under existing legal
frameworks here in the UK,” said Peter Left, head of digital finance at
Lloyds. “It’s a major step forward in demonstrating how tokenization can
enhance collateral efficiency, reduce friction, and unlock new trading
opportunities.”
Aberdeen’s
Chief Product Officer Emily Smart said the collaboration aimed to show
“real-world application of on chain collateral movements using tokenized
assets” and highlighted “the ability of digital assets to streamline
processes and increase efficiency.”
How Blockchain Can Help FX
Trades
The firms
say blockchain technology allows digital assets to automatically follow trading
agreement rules, potentially cutting operational costs and reducing
counterparty risk. They also suggest wider adoption could help limit systemic
risk during market stress by enabling digital transfers instead of forced asset
sales.
Graham
Rodford, CEO of Archax, described the transaction as a test case for the firm’s
“permissioned DeFi collateral transfer network” and said it
represented “another key digital milestone in the foundation for a more
open and efficient financial system.”
The pilot
follows recent government initiatives to expand digital asset use in UK
financial markets. In March, Chancellor of the Exchequer invited financial
services firms to help shape plans for digital gilt instruments.
Banks
across the UK are at various stages of testing digital asset offerings as new
legislation covering the sector moves forward. The successful completion of
this pilot could pave the way for broader adoption of tokenized collateral in
foreign exchange trading.
Archax completed the acquisition of a U.S. broker-dealer this year, paving the way for it to offer RWAs (real-world assets) in the United States. At the same time, tokenized stocks are gaining significant popularity, not only among cryptocurrency exchanges but also among major players in retail e-trading, including Robinhood.
Lloyds
Banking Group and Aberdeen Investments completed what they’re calling the first
use of tokenized real-world assets (RWAs) as collateral for foreign exchange
(FX) trades in the UK, working with digital asset exchange Archax to handle the
transactions.
Lloyds, Aberdeen Test
Digital Assets as FX Collateral
The pilot
program used digital tokens backed by UK government bonds and units from
Aberdeen’s money market fund as collateral for currency trades between the two
firms. Archax, which holds regulatory approval from the Financial Conduct
Authority (FCA), processed and stored the digital tokens on the Hedera
Hashgraph blockchain.
The test
comes as UK financial institutions explore ways to reduce trading costs and
streamline operations. The country’s daily foreign exchange and interest rate
derivatives trading volumes reach $5.4 trillion, representing roughly half of
global activity in these markets.
“Digital
assets can be used in regulated financial markets under existing legal
frameworks here in the UK,” said Peter Left, head of digital finance at
Lloyds. “It’s a major step forward in demonstrating how tokenization can
enhance collateral efficiency, reduce friction, and unlock new trading
opportunities.”
Aberdeen’s
Chief Product Officer Emily Smart said the collaboration aimed to show
“real-world application of on chain collateral movements using tokenized
assets” and highlighted “the ability of digital assets to streamline
processes and increase efficiency.”
How Blockchain Can Help FX
Trades
The firms
say blockchain technology allows digital assets to automatically follow trading
agreement rules, potentially cutting operational costs and reducing
counterparty risk. They also suggest wider adoption could help limit systemic
risk during market stress by enabling digital transfers instead of forced asset
sales.
Graham
Rodford, CEO of Archax, described the transaction as a test case for the firm’s
“permissioned DeFi collateral transfer network” and said it
represented “another key digital milestone in the foundation for a more
open and efficient financial system.”
The pilot
follows recent government initiatives to expand digital asset use in UK
financial markets. In March, Chancellor of the Exchequer invited financial
services firms to help shape plans for digital gilt instruments.
Banks
across the UK are at various stages of testing digital asset offerings as new
legislation covering the sector moves forward. The successful completion of
this pilot could pave the way for broader adoption of tokenized collateral in
foreign exchange trading.
Archax completed the acquisition of a U.S. broker-dealer this year, paving the way for it to offer RWAs (real-world assets) in the United States. At the same time, tokenized stocks are gaining significant popularity, not only among cryptocurrency exchanges but also among major players in retail e-trading, including Robinhood.
This post is originally published on FINANCEMAGNATES.
