Europe's digital capital markets infrastructure took a significant step forward this month when Pontes went live, marking the first time transactions in the continent's emerging tokenised securities markets could settle using central bank money rather than private alternatives.
The Eurosystem service acts as a connector between platforms built on distributed ledger technology (DLT)—which handle the trading of digital securities—and TARGET Services, the established system through which euro payments settle in central bank funds. This arrangement allows the securities portion of a transaction to occur on DLT infrastructure while the corresponding payment moves through the central banking system.
Four market infrastructures are participating in this initial phase: Clearstream in Luxembourg, SWIAT and Cashlink based in Frankfurt, and Axiology in Vilnius. Axiology operates a regulated DLT Trading and Settlement System under the EU DLT Pilot Regime, enabling the issuance, trading, and settlement of digital securities through unified infrastructure.
Why settlement assets matter
Axiology's platform consolidates securities issuance, trading, custody, and settlement functions within a single regulated environment, aiming to reduce costs and complexity for capital-raising entities and broaden investor access across Europe.
The distinction between Pontes and the retail digital euro—still under development—is crucial. While the latter targets everyday payments, Pontes specifically addresses how central bank money can underpin settlement in digital capital markets. TARGET Services supplies the cash component of tokenised securities transactions, while DLT operators like Axiology manage the securities side.
Martynas Pilkis, Business Development Officer at Axiology, emphasises that the platform operates within regulated financial markets rather than the cryptocurrency space. Axiology previously supported settlement through euro-denominated stablecoins, enabling same-day or atomic transactions depending on client requirements. Pontes now provides an additional option: settlement through central bank money.
Pilkis, who spent two years at the Committee on Payments and Market Infrastructures in Basel working on the G20 cross-border payments programme and stablecoin analysis, argues that while stablecoins offer advantages, their drawbacks become critical for high-value transactions.
Stablecoins, for high-value payments, are not that good because you still have certain credit and liquidity risks.
Martynas Pilkis, Axiology
Even purportedly stable stablecoins have experienced value fluctuations. Pilkis points out that when a stablecoin trades at 87 cents per dollar, it undermines confidence in serious financial transactions, making access to central bank money essential.
If your stablecoin can trade for 87 cents per dollar, that's not very good for serious payments. That's why access to central bank money is very important.
Martynas Pilkis, Axiology
The European Central Bank has its own incentive to ensure central bank money remains relevant as financial infrastructure evolves. Currently, DLT market infrastructures like Axiology are modest in scale compared with established players, but Pilkis suggests this could shift rapidly if tokenised capital markets reach critical mass.
What happens if central bank money is left behind and doesn't give access to these new infrastructures? We will make do without central bank money, and maybe we will reduce its usage overall.
Martynas Pilkis, Axiology
Such a scenario would introduce additional credit and liquidity risks into securities settlement—an outcome the ECB wishes to prevent, which is why the institution has prioritised this initiative.
Three years of infrastructure development
Obtaining the DLT Trading and Settlement System designation required scrutiny extending beyond Lithuania's national regulator. The European Securities and Markets Authority and the European Central Bank both examined Axiology's settlement mechanisms and how settlement finality operates on its platform.
There are only four DLT Trading and Settlement Systems in Europe.
Martynas Pilkis, Axiology
Pilkis notes that the approval process was rigorous. "It's not only the national regulator vetting you, but also the European Securities and Markets Authority, and the European Central Bank for your settlement mechanism — how settlement finality is reached on your trading platform. These things have been carefully reviewed, and it's not easy to jump onto that train."
The Eurosystem commenced exploratory work on DLT-based wholesale settlement in 2024, followed by the formal Pontes project and development of its launch model. Axiology's involvement traces back to that initial exploration phase. The company has collaborated with the Bundesbank since near its founding and participated in testing of the Bundesbank's trigger solution in spring 2024.
We had early traction and showed that our platform is capable of handling these transactions and being interconnected with the TARGET system.
Martynas Pilkis, Axiology
Pilkis contends that smaller technology firms bring a distinctive advantage to regulators and institutions: operational agility.
They really want to have us. They admire our speed because we have an agile technical team which can deliver fast. We are fast with our clients. I think for any startup, that's a good sign to have.
Martynas Pilkis, Axiology
What Pontes changes in practice
TARGET represents the core Eurosystem infrastructure for moving central bank money. Pilkis describes Axiology's role as intermediary: "What we do is stand in the middle between the asset leg and the cash leg, and on behalf of our participants, we instruct the cash leg."
Axiology is currently testing the connection across the complete digital securities lifecycle, encompassing primary issuance, secondary-market trading, redemptions, and coupon or interest payments.
The settlement asset can now align with transaction requirements—whether that means the speed and programmability of a stablecoin or central bank money through Pontes. Financial institutions no longer face a choice between adopting new DLT infrastructure and settling in central bank money.
Fixed income securities are expected to be among the first areas where this infrastructure gains meaningful adoption. Pilkis anticipates state-led initiatives, particularly from Germany's KfW development bank, will drive early issuances.
In Germany, we're seeing state-led initiatives, particularly from KfW, so I'm sure we'll see issuances there.
Martynas Pilkis, Axiology
France represents another opportunity, where interest exists in migrating portions of the Negotiable European Commercial Paper market to DLT infrastructure.
Axiology is also collaborating with banks on transferring assets between entities within the same banking group using Pontes for settlement, and is in discussions with European treasuries regarding sovereign issuance.
Most treasuries are really interested in how we can make sovereign issuances on new rails, accessing new types of investors and saving money because the new system can be more cost-efficient.
Martynas Pilkis, Axiology
However, Pilkis expects adoption rates will vary significantly across Europe.
This will not be fast. As always when you're moving with the public sector, it really takes time. I have this feeling that bigger countries, especially France and Germany, are prioritising these projects. Others are a little bit in wait-and-see mode.
Martynas Pilkis, Axiology
Can digital infrastructure address Europe's fragmented capital markets?
For Axiology, the opportunity extends beyond technological change in securities settlement. Pilkis identifies a longstanding structural problem: European capital markets infrastructure remains fragmented along national boundaries.
One of the major problems with Europe's existing financial market infrastructure is that it remains highly divided along jurisdictional borders. That's one of the big hurdles to achieving a genuine Capital Markets Union.
Martynas Pilkis, Axiology
Axiology was designed differently—as a pan-European platform from inception.
With a new breed of companies like Axiology, we're pan-European from day one.
Martynas Pilkis, Axiology
Pilkis believes that more transparent and cost-efficient digital markets could democratise capital access for smaller issuers. Currently, fixed-income issuers in Europe face significant barriers unless they raise approximately €100 million, as obtaining ratings and accessing broader markets becomes difficult below that threshold.
Today, if you're issuing a fixed-income instrument in Europe and you're not issuing roughly €100 million, obtaining ratings and accessing the broader market can be difficult. With open digital capital markets, we can bring smaller issuances into the market more efficiently and create more opportunities for investors.
Martynas Pilkis, Axiology
What needs to happen next?
Pontes addresses one component of the infrastructure challenge. The subsequent hurdle involves preventing Europe from developing a collection of isolated digital markets around it. For Axiology specifically, Pilkis identifies immediate priorities centred on network expansion.
At the moment, our network is focused on brokerages and crowdfunding platforms. With Pontes, it's the right time to grow the commercial-banking side.
Martynas Pilkis, Axiology
Axiology maintains commercial banking partners in the Baltic region but aims to attract additional banks from across the European Union onto its infrastructure.
Looking further ahead, Pilkis identifies programmability as one of the most transformative possibilities emerging from tokenised capital markets.
Today, your commercial bank can programme certain things on your behalf — for example, an automatic monthly utility payment. But in a tokenised future and digital capital markets, we want stakeholders themselves to be able to build programmable functionality. That could enable entirely new business models.
Martynas Pilkis, Axiology
For Pilkis, this represents where the technology's genuine potential emerges. "If we see that emerge five or ten years from now, I'll be very happy."
Source: Tech.eu
