Lloyds and Aberdeen use tokenized assets for FX collateral in UK first

Lloyds Banking Group and Aberdeen Investments have completed the UK’s first FX trades collateralized with tokenized real-world assets, in a blockchain pilot with Archax.

Lloyds Banking Group and Aberdeen Investments have teamed up with UK-regulated crypto exchange Archax to pilot FX trades using tokenized real-world assets as collateral, Bloomberg reported on Monday.

In a first for the UK, the trades leveraged digital tokens representing both Aberdeen’s money market fund (tMMF) and UK gilts. These tokens were issued, transferred, and held securely via Archax on the Hedera Hashgraph blockchain.

According to Peter Left, head of digital finance at Lloyds, the pilot aims to show that digital assets can be used as collateral in real-world financial transactions without requiring new legal structures.

“Digital assets can be used in regulated financial markets under existing legal frameworks here in the UK,” he said in a statement, adding that the use of blockchain technology allows for greater collateral efficiency while reducing operational friction.

The Lloyds-Aberdeen pilot is part of the broader trend to modernize collateral systems using blockchain and tokenization. Several major institutions have launched similar projects aimed at improving the speed, transparency, and efficiency of collateral transfers.

In late 2023, J.P. Morgan collaborated with BlackRock and Barclays through its Onyx Digital Assets platform to facilitate the transfer of tokenized money market fund shares for use as collateral in derivatives trading. The transaction, which settled in minutes rather than days, showcased the dramatic operational gains possible with blockchain infrastructure.

In October last year, Finality, backed by major UK banks including Lloyds, Santander, and UBS, piloted a blockchain-powered platform to enable intraday settlement of margin calls using tokenized central bank money. This system leverages digital tokens that represent actual central bank funds held via an omnibus account at the Bank of England.

Beyond the UK, similar initiatives are gaining momentum globally. Most recently, Singapore’s central bank partnered with ISDA and Ant International to test the use of tokenized bank liabilities and deposits for cross-border FX settlement, demonstrating how blockchain-based instruments could streamline international financial flows.