Lloyds Bank trials tokenised assets as FX collateral

Lloyds Banking Group has partnered with Aberdeen Investments and Archax, a digital asset exchanged regulated by the Financial Conduct Authority (FCA), to use tokenised assets as collateral for foreign exchange (FX).

The bank said the trial is a “UK-first” initiative, with the move potentially transforming how blockchain technology is used.

UK gilts were used as collateral for the FX trades between Aberdeen and Lloyds.

These digital tokens were issued, transferred and held by Archax on the Hashgraph public permissioned blockchain.

Lloyds said that the UK trades $5.4 trillion in FX and interest rate derivatives daily, accounting for half of global activity.

The bank added that this trade demonstrates that regulated digital assets can serve as collateral in this market.

As digital assets can be programmed to automatically follow the rules of trading agreements streamlining the margining process, Lloyds said this can reduce operational costs, enhance collateral efficiency and minimise counterparty risk.

Lloyds added that wider adoption of tokenised funds as collateral could also help reduce systemic risk during periods of market stress by enabling digital transfers instead of forced asset sale thereby reducing volatility.

“This groundbreaking initiative proves that digital assets can be used in regulated financial markets under existing legal frameworks here in the UK,” said Peter Left, head of digital finance at Lloyds Banking Group. “It’s a major step forward in demonstrating how tokenisation can enhance collateral efficiency, reduce friction, and unlock new trading opportunities.”