DeFi: How is Lloyds Leading the UK with Tokenised Deposits?

Major UK bank Lloyds has partnered with public blockchain Canton Network. 

In a milestone moment for the bank, it claims this is the first time that Tokenised Deposits have been issued on a public blockchain in the UK. 

Lloyds Bank PLC issued a tokenised deposit via Canton Network, an open distributed ledger.

Lloyds Bank Corporate Market used the deposit to then purchase a Tokenised Gilt from Archax, a regulated digital asset exchange. 

The underlying funds were then moved back to its regular Lloyds bank account by Archax.

A new wave of efficiency: mainstream decentralised finance 

The use of blockchain by Lloyds demonstrates the ease with which traditional banking systems can interact with blockchain transactions. 

Surath Sengupta, Head of Transaction Banking Products at Lloyds, says: “This transaction offers a glimpse into the future of finance; faster, smarter, and more efficient. 

“Tokenisation allows us to bring real-world assets onto blockchain infrastructure, creating opportunities for businesses to transact with greater speed, transparency, and flexibility. 

Surath explains that the tokenisation of deposits continues to offer benefits and decrease losses: “Crucially, these advantages come without losing the benefits of traditional deposits, as Tokenised Deposits can continue to earn interest and remain protected by the Financial Services Compensation Scheme. 

“This pilot is a critical step towards building the financial ecosystem of the future.” Surath notes. 

Better bonuses for businesses 

Introducing the tokenisation of deposits will be beneficial to how businesses manage and move money. 

Businesses will be able to retain the benefits of traditional deposits such as earning interest, in addition to adhering with regulations. 

Graham Rodford, CEO and Co-founder of Archax comments: “This transaction shows how tokenised real-world assets can deliver real-world benefits for institutions. 

“Instant settlement and enhanced transparency are game-changers, and we’re proud to work with Lloyds and Canton to lead the way in shaping the next generation of financial markets.”

Additionally, businesses will be able to access and trade a wider range of securities thanks to Tokenised Deposits.

In a move to increase utility, access will be available through blockchain networks and traditional markets, using the same cash asset. 

Instant settlement is another benefit brought on by Tokenised Deposits, and transactions can be completed in real-time. This reduces risk and improves liquidity. 

Another benefit involves the inclusion of smart contracts which reduce manual steps and operational risk. 

These contracts are automated agreements that can execute transactions and processes instantly. 

Finally, the nature of the blockchain ensures that visibility is heightened as Distributed Ledger Technology lays out a permanent and indisputable record of transactions. 

How did tokenisation gain popularity? 

Recent conversations such as those offered by Standard Chartered suggest that the shift towards tokenisation is a broader reflection of regulatory progress. 

Banks such as Lloyds, HSBC, Nationwide, Barclays, NatWest and Santander were announced to be part of a pilot project run by UK Finance in October late last year. 

The GBTD project, supported by EY, Quant and Linklaters aims to deliver the first UK live transactions of tokenised sterling deposits. 

Jana Mackintosh, Managing Director, UK Finance says: “This project is a powerful example of industry collaboration to deliver next generation payments for the benefit of customers and businesses - and an opportunity for the UK to lead globally in setting standards for tokenised money. 

Jana continues: “Andrew Bailey, Governor of the Bank of England, recently called for innovation in how digital technology is applied to the money we use today. That’s exactly what tokenised deposits represent: a secure, regulated evolution of the payments landscape”.