By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Piero Cipollone on Monday said Europe would need tokenized central bank money, closer public-private cooperation and a stronger legal framework if it wanted to scale tokenized financial markets and turn an early lead into lasting advantage.

Speaking in Brussels, Cipollone said Europe had already built momentum in tokenized finance, but that fragmentation across platforms and the lack of a common on-chain settlement asset were still holding the market back.

“The market momentum is real, and Europe is well placed to lead,” he said. “But two main obstacles are preventing scale.”

According to Cipollone, one problem was that multiple distributed-ledger platforms were operating in parallel without synchronizing or allowing assets to move easily between them, fragmenting liquidity and raising costs.

The other was the lack of “a common, trusted on-chain settlement asset for transactions on DLT networks,” which he said limited the market’s ability to expand because participants could otherwise be forced to accept settlement in assets carrying price volatility or credit risk.

Cipollone argued that tokenized central bank money should provide the system’s anchor, saying that without it tokenized markets would struggle to develop at the speed and scale Europe needed.

“Central bank money is the safest and most liquid settlement asset,” he said. “It does not carry any credit or liquidity risk and thus serves as the monetary anchor for the financial system.”

Private settlement assets such as tokenized deposits and stablecoins would still play a role, he said, but they could not by themselves provide the foundation for a broad tokenized financial market.

“That confidence cannot rest on private settlement assets alone,” he said.

Cipollone said the Eurosystem’s 2024 exploratory work had shown strong demand for central bank money settlement on distributed-ledger platforms and had informed its strategy for bringing such settlement onto the new technology.

He said Pontes, due to be launched in the third quarter of this year, would provide a near-term bridge between market DLT platforms and the Eurosystem’s TARGET Services, allowing tokenized asset purchases to settle in central bank money.

Over time, he said, Pontes would be enhanced with features such as settlement finality on Eurosystem DLT, 24/7 operation and smart-contract functionality.

Cipollone also pointed to the longer-term Appia project, whose roadmap the ECB published on March 11, as the framework for designing a broader European tokenized financial ecosystem by 2028.

“Pontes and Appia are not separate initiatives,” he said. “They form a single strategy.”

That strategy, he said, would have to be built jointly with market participants, public-sector bodies and academia, with the Eurosystem providing the settlement anchor while the private sector supplied the services, liquidity and business models needed to make tokenized markets valuable.

“The services, liquidity and business models that will make tokenized markets valuable must come from the market itself,” he said.

Cipollone said the Appia roadmap was intended as an invitation to industry and other stakeholders to help shape the project, including work on interoperability standards, collateral management, cross-border connectivity and legal foundations.

He welcomed recent private-sector work by Euroclear, Clearstream and DTCC on digital-asset securities interoperability, saying it aligned well with the Appia roadmap.

Still, Cipollone stressed that legal fragmentation remained a major constraint and could not be solved by technology alone.

“Distributed ledger technology cannot harmonize corporate law across 27 Member States, reconcile divergent securities regulations or override national insolvency regimes,” he said.

He welcomed European Commission proposals to extend and improve the DLT Pilot Regime as well as the planned 28th regime for corporate law, but suggested that policymakers might need to go further.

“[I]t might be worth reflecting on whether these steps are sufficient or if we need a dedicated EU legal framework that enables tokenized assets to be issued, held and transferred seamlessly across the EU,” he said.

Cipollone warned that the window for Europe to convert its early progress into durable leadership would not stay open indefinitely as global competition intensified.

“Europe succeeded in building a single currency,” he said. “It can also build a single digital financial market to stand alongside it.”