“I don’t have any real political ideas, but I hope there is enough momentum behind this,” Paul said via WhatsApp. “And I think that given that this is now the remit of Her Majesty’s Treasury, the Bank of England and the Financial Conduct Authority, it doesn’t require much political intervention to proceed. If anything, I think this could support further demand for UK debt at a convenient time for the UK government.”
Changing capital flows
Paul said moving sovereign debt up the chain changes the way capital flows through the financial system, making it more than just an administrative adjustment. Native digital bonds allow market participants to settle trades instantly and move collateral between locations without the delays of traditional market infrastructure.
This programmability alters the dynamics of intraday repo markets, a change that market participants believe could free up tens of billions of dollars in idle liquidity. The UK bond market currently sees aggregate daily trading volumes exceeding £45bn.
However, a key obstacle remains: the lack of a standardized on-chain payment method.
“Santander issued a sterling-denominated tokenized corporate bond back in 2019, so we’ve been demonstrating that bonds can be tokenized for almost seven years,” said Jannah Patchay, founder of Markets Evolution. “The challenge then, as now, was how to settle that bond on-chain using a counterparty risk-free settlement asset, and we still don’t have a compelling solution.”
