ECB Delays Short-Term DLT Settlement Solution Until 2026

ECB’s Announcement on DLT Settlement Solutions

In February, the European Central Bank (ECB) unveiled its strategy for a dual-track approach to facilitate the wholesale settlement of Distributed Ledger Technology (DLT) transactions using central bank money. However, the ECB has now confirmed that the short-term initiative, named Pontes, will only be accessible for pilot programs by the third quarter of 2026, a decision likely to disappoint many stakeholders in the financial sector. The term “Pontes” translates to “bridges” in Latin.

Previous Trials and Industry Concerns

Last year, the ECB conducted a successful exploration involving three distinct solutions with participation from 64 institutional entities, resulting in settlements totaling €1.6 billion. There was hope that the pilot phase would continue to maintain momentum, but the current timeline indicates a significant two-year hiatus between the two initiatives. This delay raises concerns about potential interim solutions.

Expected Features of the Short-Term Solution

The initial approach is anticipated to incorporate Germany’s Trigger solution, with the possibility of including Italy’s Hashlink. However, further details will be revealed in the ECB’s official announcement.

Long-Term Vision: Appia and Beyond

The long-term strategy, referred to as Appia, is expected to explore the concept of a wholesale Central Bank Digital Currency (CBDC). This initiative is more experimental and may align with the broader vision of a unified ledger across Europe, which could complement the continent’s Savings and Investment Union objectives. Additionally, it is expected to include features for international payments.

Upcoming Report on DLT Settlement Trials

In the meantime, a report detailing the outcomes of last year’s wholesale DLT settlement trials is set to be released soon.

Exploring Alternative Settlement Options

With the delay in the ECB’s central bank solution, market participants may consider various alternatives. While many central banks, including the ECB, are cautious about stablecoins, European institutions are eager to maintain their competitive edge as the U.S. accelerates its tokenization efforts.

The Role of Stablecoins and Tokenized Deposits

The absence of a central bank settlement option could lead to increased reliance on stablecoins, despite a preference for central bank money among institutions. Tokenized deposits present another alternative, though their availability in Europe is limited, and single-bank tokenized deposits may not be the most effective solution. The feasibility of a multi-bank tokenized deposit system, such as Germany’s Commercial Bank Money Token, raises questions about its potential launch timeline compared to the Eurosystem’s offerings.

Integration with Existing Multi-Bank Systems

Another possibility involves integrating with existing multi-bank wholesale systems like Fnality or Partior. However, gaining swift approval for these systems may prove challenging. Even if they receive the green light, the short timeframe before central bank solutions are expected to arrive raises doubts about the value of such efforts.

Utilizing Current Solutions

Ultimately, the most straightforward approach may be to leverage existing solutions available in the market.

Disclaimer: This article is provided for informational purposes only and does not constitute financial advice. Readers are encouraged to conduct their own research before making any investment decisions.