Lloyds Bank and Archax buy a gilt on a public blockchain using tokenised deposits

• Lloyds Bank issued tokenised sterling deposits onto the Canton Network public blockchain and used them to buy a gilt-edged security from Archax

• Lloyds ran its own node on the Canton Network rather than rely on the network provider, so retained control of customer service standards

• Tokenised deposits, unlike Stablecoins, enable users to stay within regulatory perimeters and deposit insurance schemes

Lloyds Banking Group, Archax and Canton Network say they have proved that a UK government security (“Gilt”) can be bought on a public blockchain - the Canton Network - using tokenised deposits for the cash leg.

Lloyds says the transaction is the first in which tokenised deposits denominated in sterling have been issued on to a public blockchain in the United Kingdom.

The transaction involved Lloyds Bank PLC issuing tokenised sterling deposits on to the Canton Network, a blockchain designed by blockchain technology vendor Digital Asset for regulated financial markets.

Lloyds Bank Corporate Markets, part of the Lloyds Banking Group, then used these tokenised deposits to purchase a tokenised Gilt from Archax.

Archax then moved the underlying funds back into its regular Lloyds account.

Importantly, as part of the transaction, Lloyds ran its own validator node on the Canton Network. This means the bank can tell customers deposits and payments are managed to the same standards it uses for traditional cash deposits and payments.

The three partners say the experiment proved how easily transactions can flow between blockchains and traditional banking systems.

In a context where the United Kingdom government says it is exploring the possibility of issuing its own debt in tokenised form, the experiment has an obvious target audience.

If a government bond market was tokenised, it would turbo-charge the still nascent tokenised securities markets.

In principle, it would encourage private sector issuers to follow suit, and attract institutional investors to security token markets, where they would benefit from cheaper and faster real-time settlement orchestrated by smart contracts, the consequent reduction in counterparty risk, the accompanying increase in liquidity and full transparency into settled transactions.

On the cash side, tokenised deposits – unlike Stablecoins - offer businesses of all kinds the ability to settle transactions on blockchains, without straying outside regulatory perimeters or deposit insurance schemes or losing interest payable on cash.

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

“Tokenisation allows us to bring real-world assets onto blockchain infrastructure, creating opportunities for businesses to transact with greater speed, transparency, and flexibility. Crucially, these advantages come without losing the benefits of traditional cash, 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.”