Lloyds Bank, Archax, and Canton Network Achieve Historic Gilt Purchase Using Tokenised Deposits

In a groundbreaking digital finance achievement, Lloyds Banking Group has executed the first-ever Gilt purchase utilizing tokenised deposits. This significant transaction was made in collaboration with Archax and the Canton Network, marking a historic moment for both the UK and the global financial landscape.

Key Takeaways

First Gilt Purchase with Tokenised Deposits: Lloyds completed the first Gilt purchase using tokenised deposits on a public blockchain.
Collaboration with Archax and Canton Network: The transaction involved Lloyds, Archax, and the Canton Network, a privacy-enabled blockchain suitable for regulated financial markets.
Seamless Banking Integration: The process highlights how blockchain can effectively integrate with traditional banking systems while maintaining security and regulatory standards.
Significance for Digital Securities: The Gilt purchase illustrates the potential for digital versions of traditional securities to enhance efficiency and transparency in capital markets.
Future of Digital Finance: This pilot transaction signifies a step towards a hybrid financial system combining traditional banking with innovative digital assets.

London

Overview of the Transaction

Lloyds Bank PLC executed the transaction by issuing tokenised deposits on the Canton Network—a public blockchain that ensures privacy and is designed to meet the regulatory needs of financial markets. These tokenised deposits were then used by Lloyds Bank Corporate Markets to acquire a tokenised UK Gilt, which had been issued by Archax.

Following this trade, Archax transferred the underlying funds back into its conventional Lloyds bank account. This process demonstrated a smooth connection between blockchain technology and traditional banking systems, highlighting how digital assets can be traded without disrupting standard cash management or custody systems.

The design of the Canton Network played a crucial role in this transaction. Unlike private ledgers, this public-but-private network allows for greater industry involvement while ensuring confidentiality and compliance—key factors needed for institutional acceptance.

Digitising Gilts: A New Era

This Gilt purchase aligns with the UK government's initiative to explore the issuance of digital versions of traditional securities. It serves as a practical example of how tokenisation can facilitate this vision, enabling sovereign instruments like Gilts to operate within a programmable, blockchain-based framework.

Tokenisation enhances efficiency in capital markets by enabling instant settlement, reducing counterparty risks, improving liquidity, and shortening settlement times—problems that have long plagued traditional financial systems.

The Importance of Tokenised Deposits for Businesses

Tokenised deposits offer businesses the ability to transact on blockchain networks while retaining the core benefits of bank deposits, such as earning interest and aligning with regulatory protections. By utilizing a single cash instrument, companies can access and trade a broader array of assets in both traditional and online markets.

Additional advantages include real-time settlement, the automation of smart contracts to minimize operational risks, and enhanced transparency from distributed ledger systems.

Notably, as part of the transaction, Lloyds also operated its own validator node on the Canton Network, which ensured that the transactions adhered to the same security and governance standards as traditional deposits.

Paving the Way for the Future of Finance

This transaction builds upon Lloyds' previous digital asset initiatives with Archax, including utilizing tokenised money market fund units as collateral. According to Lloyds, tokenisation paves the way for quicker, smarter, and more efficient financial markets while still upholding the protective measures typical of conventional banking practices.

Graham Rodford, CEO of Archax, stated that this trade exemplifies how tokenised real-world assets offer substantial benefits, with instant settlements and greater transparency serving as "game-changers" for institutional markets.

Collectively, this pilot represents a significant move towards a hybrid financial system—one where regulated digital currencies and tokenised assets can exist alongside traditional banking infrastructure seamlessly.