Canton progresses international repo initiative to unlock $300 trillion in assets through tokenization.

A consortium of international financial institutions has tokenized a repurchase agreement involving U.K. government bonds for the first time.

(PublicDomainPictures/Pixabay modified by CoinDesk)

Key points:

• A consortium of prominent financial institutions, including DTCC, conducted the inaugural cross-border intraday repo utilizing tokenized U.K. government bonds on the Canton Network.
• This transaction featured the first cross-currency exchange where tokenized gilts were traded for tokenized deposits in a currency other than sterling, with smart contracts incorporating interest and risk conditions.
• Advocates argue that employing blockchain for such repos could release a significant portion of the approximately $300 trillion in high-quality liquid assets as collateral by facilitating real-time, continuous settlement across borders.

A consortium of international financial firms has successfully executed the first cross-border, intraday repurchase agreement utilizing tokenized U.K. government bonds on the Canton Network, a blockchain tailored for institutional use.

This transaction signifies the initial instance in which digital versions of gilts, within a $2-trillion market, have been utilized in an intraday repo across borders, as per a statement released to CoinDesk. It also marks the first cross-currency trade where tokenized gilts were exchanged for tokenized deposits in a currency distinct from the British pound.

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In a repurchase agreement, one entity sells a security with the commitment to repurchase it later, typically within the same day. Banks and trading companies utilize these arrangements to secure short-term liquidity. By placing both the cash and the bond on a shared blockchain, the consortium intends to facilitate the movement of collateral in real time, eliminating the need for conventional market hours.

Participants in this latest initiative include LSEG, Euroclear, DTCC, Tradeweb, Citadel Securities, and Societe Generale, along with digital asset firms such as Archax and Cumberland DRW. TreasurySpring has integrated interest payments and risk provisions directly into smart contracts associated with the trades.

This development aligns with Canton’s broader objective of enhancing the utility of $300 trillion worth of global assets, such as government bonds, as collateral through tokenization on a blockchain, as stated by Kelly Matheison, chief business development officer of Digital Assets, in an interview with CoinDesk.

Digital Asset is the principal development company behind the Canton Network and secured funding last year from major financial organizations including Goldman Sachs, DRW, Citadel Securities, BNY, and Nasdaq.

"Globally, there are approximately $300 trillion of high-quality liquid assets," Matheison noted. "However, only around 10%-11% of that — approximately $28 trillion — is utilized as collateral at any given moment."

This limitation arises from timing issues. In traditional markets, companies are required to plan several days in advance to transfer securities across borders, contending with settlement cycles, batch processing, and market cut-off periods.

"Practically speaking, this restricts the volume of high-quality liquid assets that can be operational at any given time," she explained.

Utilizing blockchain ledgers like Canton for these transactions enables counterparties to transfer ownership instantaneously and continuously, rather than waiting for batch settlement periods. Consequently, financial institutions can optimize their balance sheets and increase trading activity, Mathieson stated.