Lloyds Banking Group and Aberdeen Investments were responsible for the UK’s first foreign exchange (FX) trade using tokenized assets, including UK Gilts and Money Market Fund units.
The transaction was facilitated through a partnership with Archax, a digital asset exchange regulated by the Financial Conduct Authority (FCA), and took place on the Hedera Hashgraph blockchain. The initiative marks the first time that tokenized real-world assets (RWAS) have been used as collateral for regulated FX trade within the UK.
“This groundbreaking initiative proves that digital assets can be used in financial markets regulated under the UK’s existing legal framework,” said Peter Left, Lloyd’s Head of Digital Finance. “This is a huge step forward in showing how tokenization can increase collateral efficiency, reduce friction and unlock new trading opportunities.”
The UK is crossing milestones with tokenized collateral
The project is part of a broader move by the UK government and private institutions to explore tokenization in financial services. In March, the Prime Minister of Exchequer invited market participants to help shape the framework for the UK’s digital Gilt Instruments. This is a consultation that laid the foundation for regulated innovations such as this pilot.
The importance of this initial use case is emphasized by the size of the market that we touch. The UK accounts for almost half of global activity in Forex and interest rate derivatives, trading an estimated $5.4 trillion each day.
Applying blockchain even to some of this activity can reduce systemic risk and increase transparency, speed and efficiency.
The fact that Archax is fully FCA regulated ensures compliance, and Lloyds and Aberdeen bring in institutional scale and reliability to the experiment.
In particular, this initiative was implemented within the current legal framework of the UK. This is a point that both Lloyds and Archix highlighted. The ability to carry out these operations without the need for legislative changes makes it more likely that tokenized finance will expand rapidly across asset classes and market functions.
Participants assert efficiency and resilience
Applying digital tokens in this transaction reduces the operational friction associated with traditional collateral processing and makes them less intake. It also helps to reduce the risk of counterparties by reducing the exposure window between trade execution and collateral delivery.
Graham Rodford, CEO and co-founder of Archax, spoke about the importance of collaborating in the statement.
“This latest use case for Nest, the authorized Defi secured transfer network, highlights the power of regulated digital infrastructure to support institutional grade needs.”
He added that the initiative “established another important digital milestone on the foundations for a more open and efficient financial system.”
Emily Smart, Chief Product Officer at Aberdeen Investments, shared a similar view.
“Tokenization has long been seen as an important enabler in the new world of digital innovation, indicating the ability of digital assets to streamline processes and improve efficiency.”
Beyond the immediate benefits of operational efficiency, the wide adoption of tokenized funds and gold leaf can provide macro-level benefits, especially in times of market stress. By digitizing collateral, agencies can avoid fire sales of assets and meet margin requirements, which may reduce volatility and systematic risk.
