Europe’s tokenisation ambitions face infrastructure hurdle

By Vriti Gothi

Europe’s ambitions to build competitive tokenised capital markets may depend less on distributed ledger experimentation and more on overhauling the region’s post-trade infrastructure, according to industry participants.

Tokenisation the issuance and lifecycle management of financial instruments on blockchain or other distributed ledger technology (DLT) — has moved steadily from pilot projects to limited production use cases across bonds, funds and private assets. Policymakers across the EU and UK have introduced regulatory sandboxes and DLT-specific frameworks aimed at encouraging innovation. However, as global markets transition toward shorter settlement cycles, attention is shifting to whether Europe’s underlying market structure is equipped to scale.

The move to T+1 settlement in major markets, and growing discussion around near-instant or T+0 models, is compressing operational timelines across clearing, settlement and collateral management. While tokenised markets are often associated with atomic settlement and reduced counterparty risk, these efficiencies depend on legal certainty, interoperable systems and automated post-trade processes.

Richard Baker, Founder and CEO of UK-based FinTech Tokenovate, argues that infrastructure reform is now critical to ensuring tokenisation can move beyond experimentation.

“European tokenisation firms are right to push for faster reform, because tokenised markets only work when the infrastructure around them evolves too,” Baker said. “Settlement, legal finality, risk and liquidity management are where tokenised markets either succeed or stall, particularly as timelines compress and markets move toward T+1 and T+0 settlement.”

His comments reflect a broader concern within the FinTech and capital markets community: that regulatory frameworks designed for sandbox environments may not provide the certainty or scalability required for institutional-grade deployment.

In the United States, regulators and market participants have begun shifting from pilot programmes to production-level initiatives, supported by clearer policy signals around digital assets and tokenised securities. That transition, Baker suggests, could widen the competitive gap if Europe does not adapt its infrastructure in parallel.

“As the US moves from pilots into production with clearer regulatory signals, the risk for Europe is that market infrastructure remains constrained by frameworks designed for experimentation rather than scale,” he said.

A central challenge lies in harmonising legal definitions of ownership and settlement finality with DLT-based processes. Traditional post-trade systems rely on central securities depositories (CSDs), clearing houses and layered intermediaries. Tokenised models aim to streamline these functions, but without recognised legal finality and standardised data frameworks, efficiency gains may remain theoretical.

Baker points to the need for shared industry standards to enable interoperability and automation at scale. “To stay competitive, reform needs to focus on automating the post-trade lifecycle end to end, supported by shared standards such as the Common Domain Model, which provide the semantic layer needed to make tokenised settlement interoperable, legally sound and scalable,” he said.

The Common Domain Model (CDM), developed by the International Swaps and Derivatives Association (ISDA) and other industry bodies, seeks to standardise the representation of trade events and processes. Its adoption in tokenised environments could help bridge legacy systems and DLT-based platforms, reducing fragmentation.

For Europe’s FinTech ecosystem, the debate marks a shift from front-end innovation to structural reform. As institutional investors evaluate tokenised instruments, operational robustness and regulatory clarity are likely to carry as much weight as technological capability.

Whether Europe can align its infrastructure, legal frameworks and standards with the demands of compressed settlement cycles may ultimately determine its position in the evolving global market for tokenised finance.