ECB’s interim solution for wholesale DLT settlement will take more than a year

In February the European Central Bank announced plans for a two track Eurosystem solution to enable the wholesale settlement of DLT transactions in central bank money. Now the ECB has decided that the short term solution, Pontes, will only be available for pilots by Q3 2026, which will disappoint many in the industry. Pontes is Latin for bridges.

Last year the ECB ran a successful exploration that involved three separate solutions used by 64 institutional participants and involving €1.6 billion in settlements. Some had hoped that the pilot would be allowed to continue in order to avoid losing momentum. Now it seems there will be a roughly two year gap between the two initiatives. This delay will prompt questions about interim arrangements.

The short term approach is expected to involve Germany’s Trigger solution, and possibly Italy’s Hashlink, though we’ll have to wait until the ECB’s formal announcement for the details.

The longer term solution, Appia (the road), is widely expected to involve a wholesale CBDC. This one is more exploratory and there has been discussion of a potential Europe-wide Unified ledger that might fit in with Europe’s Savings and Investment Union plans. It will also incorporate an international payment aspect.

Meanwhile, a report on the last year’s wholesale DLT settlement trials is expected to be published shortly.

Will other on-chain settlement options fill the gap?

Several alternatives might be considered by market participants. Many central banks, and especially the ECB, are not keen on stablecoins. Yet European institutions are keen to avoid losing their early advantage as the United States is now pushing forward with tokenization initiatives.

The lack of a central bank option for settlement could encourage the use of stablecoins, even though institutions prefer central bank money. Beyond stablecoins, other options might be considered.

Another alternative is tokenized deposits, but there are few of them in Europe, and single bank tokenized deposits are not an ideal solution. The question is whether a multi bank tokenized deposit solution such as Germany’s Commercial Bank Money Token could go live any faster than the Eurosystem option.

A third path might be an integration of one of the live multi-bank wholesale systems – such as Fnality or maybe Partior. But they’re not likely to get fast approval. Even if they did, would the effort be worthwhile given the relatively short window before central bank solutions arrive?

The simplest solution is to use what’s currently available.

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