Tokenised finance is expanding rapidly from decentralised experiments into core institutional infrastructure, bringing real-world assets onto distributed ledgers to enable around-the-clock settlement, according to a recent report by the Centre for Economic Policy Research (CEPR).
Infrastructure Evolution and Institutional Adoption
Distributed ledger technology applications have grown from a near-zero base into concrete use cases across core financial markets. While decentralised finance served as the initial natively on-chain playground, the sector is developing fast by tokenising traditional financial instruments, including central bank money and deposits. This transition moves financial instruments away from multiple legacy systems that require manual verification and reconciliation, centralising the full lifecycle on digital ledgers instead.
Transactions can now be programmed via smart contracts and settled atomically, meaning cash and asset legs settle simultaneously or not at all, which directly reduces settlement risk. Collateral mobility has emerged as a primary driver, with Distributed Ledger Technology repo transactions reaching an average daily turnover of about $370 billion during the final months of 2025, according to International Capital Market Association figures cited by the CEPR.
Tokenised money market funds represent another fast-growing segment, bringing approximately $10 billion on-chain through institutional asset managers and digital-native entrants. Ownership in these funds exhibits extreme concentration. For example, as of June 2026, the top five largest wallet addresses in the $2.37 billion BlackRock USD Institutional Digital Liquidity Fund (BUIDL) held 70 percent of the fund’s shares. Since mid-2025, outstanding amounts in tokenised money market funds have decoupled from Bitcoin’s price dynamics, showing distinct operational trends separate from crypto market cycles.
Market Fragmentation and Interoperability Hurdles
Despite institutional adoption, tokenised markets remain small compared to global capital markets. A Eurosystem survey of banks, institutional investors, and debt management offices indicates it could take five to ten years for tokenised solutions to dominate issuance, settlement, and trading.
Adoption faces structural barriers, including the lack of a widely adopted tokenised cash settlement asset, fragmentation-driven funding costs, thin secondary market liquidity, and limited interoperability across distributed ledger platforms. Legal uncertainty and a lack of international standards further constrain growth. These frictions cause frequent violations of no-arbitrage conditions across protocols and blockchains.
Furthermore, stablecoin issuers hold significant portions of US Treasury bills, creating measurable price impacts on yields during periods of market stress. These linkages expose traditional money markets to potential volatility.
Monetary Policy Transmission and Decentralised Finance Disconnect
While tokenised money market fund rates generally track official policy rates, decentralised finance lending protocols exhibit a distinct disconnect. Research highlighted by the CEPR shows that over the past five years, interest rates on US dollar-pegged stablecoins in Aave v2 and v3 protocols have been highly volatile, repeatedly diverging from Federal Reserve policy rates. Euro-denominated stablecoin EURC, introduced to Aave v3 in July 2025, has followed a similar pattern of divergence from the ECB deposit facility rate.
This disconnect stems from fundamental limits to arbitrage. Moving funds between decentralised finance and traditional money markets involves high costs, tax obligations, and strict Know Your Customer requirements, while stablecoins lack par convertibility with central bank reserves.
Reserve Demand and Central Bank Integration
The wider adoption of tokenised finance directly affects commercial banks’ demand for central bank reserves. Dynamic liquidity management through 24/7 repo settlement could theoretically reduce precautionary reserve buffers. Conversely, instantaneous settlement may reduce netting efficiencies, requiring banks to continuously pre-fund cash positions and pre-position collateral.
To maintain monetary policy effectiveness, central banks are adapting their operational frameworks. The Eurosystem began accepting marketable assets issued in central securities depositories using distributed ledger technology as eligible collateral for credit operations in March 2026. On September 21, 2026, the Eurosystem launched Pontes, enabling wholesale transactions in tokenised assets to settle securely in central bank money alongside the ongoing Appia initiative.
