Pontes demonstrates European resolve on tokenization
Europe is moving from experimentation to implementation in digital finance. Through Pontes and the digital euro project, the Eurosystem is seeking to ensure that central bank money continues to play a meaningful role in both wholesale and retail transactions as financial markets become increasingly tokenized.
Last month saw a significant step in the digitalization of Europe’s wholesale financial markets. Pontes is the Eurosystem’s new mechanism for settling transactions in tokenized assets using central bank money. (The Eurosystem is the central banking system of the euro area, comprising the European Central Bank (ECB) and the national central banks of countries that use the euro).
Rather than being a wholesale version of the proposed retail digital euro, Pontes connects financial-market platforms based on distributed ledger technology (DLT) with the Eurosystem’s existing TARGET settlement infrastructure.
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The benefits of tokenization
Tokenization is the process of issuing or representing assets or money in the form of digital “tokens”, typically recorded on DLT networks. In wholesale financial markets, the technology has the potential to make transactions faster and more efficient by allowing different stages of an asset’s lifecycle – including issuance, trading, settlement, custody, and servicing – to become more closely integrated. Smart contracts can also automate processes that currently require multiple intermediaries or manual intervention.
The origins of Pontes lie in the Eurosystem’s 2024 exploratory work on the settlement of DLT-based transactions in central bank money. That exercise involved both public- and private-sector participants and highlighted access to a risk-free central bank settlement asset as an important requirement if tokenized financial markets are to develop at scale.
Pontes initially offers a core set of services that the Eurosystem intends to expand in response to market requirements and technological developments. Enhanced functionality and longer operating hours will be introduced gradually, with full implementation currently expected by 2028. According to the ECB, market interest has already been substantial. An initial group of banks, financial institutions, and DLT operators have completed onboarding and is able to use Pontes, while additional participants are expected to connect in the coming months.
The importance of the initiative lies largely in the settlement of the cash side of tokenized transactions. Tokenized bonds, funds, and other securities require a reliable means of exchanging the assets for money. Pontes provides a risk-free euro-denominated settlement asset alongside emerging private alternatives such as regulated stablecoins and tokenized commercial bank deposits.
Pontes therefore helps preserve one of the traditional foundations of the financial system: the use of central bank money as the ultimate settlement asset. The objective is to ensure that, even if securities markets increasingly migrate towards DLT-based infrastructures, settlement does not become entirely dependent on privately issued digital money.
Digital euro for retail markets makes progress
Meanwhile, the separate project to develop a retail digital euro is also progressing. In July, the ECB selected 36 payment service providers from across the euro area to participate in a 12-month digital euro pilot. Preparatory and development work is now underway, while the operational phase of the pilot is scheduled to begin in the second half of 2027.
The pilot will test a beta version of the digital euro in a controlled environment intended to replicate real-world payments. Participating central-bank staff will be able to make person-to-person payments, both online and offline, as well as payments to selected physical and online merchants. The ECB has also invited e-commerce and mobile-commerce merchants to apply to participate.
The ECB aims to be technically ready for a potential first issuance of the digital euro in 2029, although this remains conditional on the adoption of the necessary EU legislation. The ECB Governing Council will make a decision on whether actually to issue a digital euro only after the legislative framework has been adopted.
The European Parliament approved its negotiating position on the digital euro legislation in July 2026, and negotiations between Parliament, the Council and the European Commission are now under way. Pontes and the retail digital euro address different parts of the financial system, but they form part of a common strategic concern: maintaining the role of central bank money as finance becomes increasingly digital.
For wholesale markets, Pontes is aimed at ensuring that tokenized securities can continue to settle in risk-free euro central bank money. or consumers and merchants, the digital euro is intended to provide a European public-money option for an economy in which digital payments continue to expand.
Europe defends monetary sovereignty
There is also a geopolitical dimension.
The ECB has become increasingly explicit about the risks posed by the growing international role of US dollar-denominated stablecoins. Dollar stablecoins account for the overwhelming majority of the global stablecoin market and, if widely adopted for European payments or financial-market settlement, could weaken the role of the euro and increase Europe’s dependence on financial infrastructures and assets governed outside the euro area.
That monetary-sovereignty concern sits alongside a related problem in retail payments: Europe’s heavy reliance on international card networks and other non-European payment providers. The ECB estimates that almost two-thirds of card-based transactions in the euro area are currently processed by non-European companies, while a number of euro-area countries depend entirely on international card schemes.
The significance of Pontes and the digital euro therefore extends beyond technological modernization. Together, they illustrate the Eurosystem’s determination to ensure that, as money and financial markets become increasingly digital and tokenized, European transactions can continue to be anchored in euro-denominated central bank money and European-controlled payment infrastructure.
Intuition Know-How has a number of tutorials relevant to the content of this article:
- Digital Assets
- CBDCs
- Tokenization
- Blockchain
- Stablecoins
- Monetary Policy
- Regulation – An Introduction
- Markets Regulation – An Introduction
