Everything you need to know about tokenisation of public assets

The token­isa­tion of pub­lic assets involves rep­res­ent­ing gov­ern­ment secur­it­ies or rights to pub­lic assets as tokens on a dis­trib­uted digit­al ledger. This enables their issu­ance, hold­ing and cir­cu­la­tion. This approach remains exper­i­ment­al in Europe, with­in a recent reg­u­lat­ory frame­work. A pilot scheme adop­ted by the EU in 2022 tem­por­ar­ily author­ises the issu­ance and trad­ing of fin­an­cial instru­ments on DLT infra­struc­tures¹, sup­ple­men­ted by the MiCA Reg­u­la­tion which entered into force in 2024 ².

The issue goes bey­ond mere digit­isa­tion. As gov­ern­ment bonds are already dema­ter­i­al­ised and integ­rated into proven set­tle­ment and deliv­ery sys­tems, the ques­tion is that of the real added value of an archi­tec­ture uni­fy­ing issu­ance, set­tle­ment and cus­tody with­in a single register. Its pro­ponents cite gains in auto­ma­tion and post-trade sim­pli­fic­a­tion; while uncer­tain­ties relate to start-up costs, oper­a­tion­al secur­ity and the leg­al sta­bil­ity of the sys­tem. The entry into force of the DORA Reg­u­la­tion in 2025³ serves as a remind­er that this trans­form­a­tion con­cerns both the gov­ernance and the tech­nic­al aspects of pub­lic fin­an­cial infrastructures.

In his pub­lic­a­tions, Pierre-Charles Pra­di­er, pro­fess­or of eco­nom­ics spe­cial­ising in pay­ments, ana­lyses the evol­u­tion of post-trade struc­tures and the con­di­tions under which tech­no­lo­gic­al innov­a­tion can gen­er­ate a meas­ur­able col­lect­ive bene­fit, giv­ing him recog­nised expert­ise on the tech­nic­al, eco­nom­ic and leg­al issues related to the token­isa­tion of pub­lic assets.

Pierre-Charles Pra­di­er. Con­vert­ing OATs into tokens is not the same as secur­it­isa­tion in the tra­di­tion­al sense. OATs are already fin­an­cial secur­it­ies; this is simply anoth­er form of rep­res­ent­ing an exist­ing security.

The cent­ral argu­ment con­cerns effi­ciency. A block­chain would integ­rate set­tle­ment, deliv­ery and cus­tody, rais­ing hopes of cost sav­ings. How­ever, cur­rent infra­struc­tures already handle con­sid­er­able volumes at a European level, with costs that have become barely notice­able. Cre­at­ing a new frame­work gen­er­ates fur­ther fixed costs, mean­ing that the short-term eco­nom­ic gain is not clear, and may even be neg­at­ive. Tech­nic­al pro­gress remains a pos­sib­il­ity in the longer term, provided reli­ab­il­ity and secur­ity issues can be resolved.

The most tan­gible bene­fit arises if token­isa­tion opens up access to decent­ral­ised plat­forms such as DeFi⁴, via auto­mated trad­ing sys­tems integ­rated into exchange plat­forms, sav­ing time and energy. How­ever, it is still neces­sary to be able to pay using elec­tron­ic cur­rency tokens. Yet euro-denom­in­ated stable­coins remain under­developed des­pite MiCA, and pub­lic author­it­ies may be reluct­ant to accept them as a means of pay­ment. The approach is there­fore more exper­i­ment­al than imme­di­ately prof­it­able, as the risks spe­cif­ic to DeFi are still poorly assessed, and secur­ity remains a key unknown.

As for trans­par­ency, French pub­lic debt is already strictly reg­u­lated through announced issu­ances, mon­it­or­ing by Agence France Trésor and pub­lic monthly reports. Token­isa­tion would provide real-time inform­a­tion, use­ful primar­ily for research rather than for demo­crat­ic over­sight. As sov­er­eign bonds have been dema­ter­i­al­ised since 2007, there is also no iden­ti­fied prob­lem of secur­it­ies disappearing.

There is cur­rently no issue with the trace­ab­il­ity of pub­lic debt in the sense of a loss of secur­it­ies. Sov­er­eign bonds, par­tic­u­larly OATs, have long been dema­ter­i­al­ised and no cases of their dis­ap­pear­ance have been identified.

The main bene­fit of switch­ing to tokens would be the fre­quency of inform­a­tion updates. We would have a real-time view, rather than the monthly report­ing pub­lished by Agence France Trésor. This improve­ment could be valu­able for cer­tain research pro­jects. How­ever, it does not alter the nature of demo­crat­ic over­sight. The pub­lic debate remains focused on the over­all level of debt rather than on the details of its issu­ance schedule.

A dis­tinc­tion must be made between the token­isa­tion of OATs and the token­isa­tion of cur­rency. MiCA reg­u­lates elec­tron­ic money tokens, which rep­res­ent the mon­et­ary unit in token form. How­ever, the exist­ence of a MiCA-com­pli­ant frame­work for the euro has not triggered a massive boom. The reas­on lies in the fact that, with­in the European Uni­on, pay­ing one mil­lion euros via a SEPA trans­fer is already extremely effi­cient, instant­an­eous and reli­able, with after-sales ser­vice and refund options in the event of fraud. Con­versely, with tokens, a scam may be irreversible.

For OATs, the rel­ev­ant frame­work falls under the 2022 European reg­u­la­tion on the pilot scheme for mar­ket infra­struc­tures based on dis­trib­uted ledgers. This is a test­ing mech­an­ism, with tem­por­ary exemp­tions last­ing three to six years and caps on amounts, not­ably an issu­ance cap of one bil­lion. How­ever, one bil­lion is mar­gin­al on the scale of the OAT stock, which runs into sev­er­al trillion.

The main obstacle lies in the trans­ition­al nature of the pilot. Between the stand­ard regime and the pilot regime, there is some uncer­tainty about what will replace the pilot. No one knows which regime will suc­ceed the pilot scheme, and this uncer­tainty is hinder­ing pro­gress. All of this con­firms the logic of a tech­no­logy demon­strat­or, in a sand­box envir­on­ment, where secur­ity is paramount.

The private sec­tor is already sub­ject to strin­gent oper­a­tion­al resi­li­ence require­ments, par­tic­u­larly under DORA. It is there­fore note­worthy that the pub­lic sec­tor is enga­ging with an issue where, in the private sec­tor, con­tinu­ity and robust­ness require­ments are already well-established.

It also cau­tions against the idea that a pro­tocol such as Bit­coin is “abso­lutely” invi­ol­able. Bit­coin is highly secure due to the energy expendit­ure involved, which is cur­rently dif­fi­cult to match, but it has exper­i­enced bugs, includ­ing the reversal of mined blocks. In prac­tice, proof of secur­ity lies in its res­ist­ance to attacks observed to date, not in a the­or­et­ic­al guar­an­tee of indestructibility.

In this con­text, the author­it­ies are pro­ceed­ing cau­tiously, using sand­boxes and trans­ac­tions between pro­fes­sion­als, without the involve­ment of private indi­vidu­als, to test func­tion­al­ity and secur­ity. The fin­an­cial sec­tor already car­ries out con­tinu­ous and peri­od­ic checks, includ­ing pen­et­ra­tion tests, even if the test­ing teams do not neces­sar­ily match the cal­ibre of state-sponsored attack­ers. The approach is gradu­al. Fol­low­ing token­ised issu­ances by entit­ies such as the Caisse des Dépôts, the Banque de France and Euroclear are plan­ning to token­ise part of the com­mer­cial paper in 2026, i.e. short-term cor­por­ate debt, start­ing small with lim­ited issuances.

It dis­tin­guishes between sev­er­al lay­ers of infra­struc­ture: the chains car­ry­ing the tokens rep­res­ent­ing secur­it­ies, those car­ry­ing e‑money tokens, and those host­ing decent­ral­ised exchange pro­to­cols. At this stage, Agence France Trésor has not selec­ted any infra­struc­ture; pub­lic e‑money tokens remain at the pilot stage; and the use of DeFi pro­to­cols by Agence France Trésor is still a hypo­thet­ic­al scenario.

At the inter­na­tion­al level, there is a register main­tained by the Inter­na­tion­al Cap­it­al Mar­ket Asso­ci­ation list­ing token­ised issu­ances. Sov­er­eign issu­ances are rare in this register. It men­tions an issu­ance by the Repub­lic of Slov­e­nia in 2024 and issu­ances in Ger­many, not­ably via KfW.

A large-scale issue of token­ised OATs would cur­rently entail a risk premi­um, as the infra­struc­ture has not been suf­fi­ciently tested. The approach is there­fore gradu­al. As per­ceived risk decreases, it becomes feas­ible to issue batches of token­ised OATs, or even the entire port­fo­lio, fol­low­ing a gradu­al path of risk reduction.

When it comes to fin­an­cial­isa­tion, the dis­tinc­tion is clear. Token­ising secur­it­ies that are already fin­an­cial instru­ments amounts to a tech­nic­al change in rep­res­ent­a­tion, with no effect on the degree of fin­an­cial­isa­tion. Token­ising non-fin­an­cial assets, on the oth­er hand, can become a tool for fin­an­cial­isa­tion. Tokens could entitle hold­ers to income from pub­lic infra­struc­ture or to stripped rights over real estate assets, bring­ing future income from pub­lic assets to mar­ket without the need for shares. A new tech­nique often broadens the range of trad­able assets; some will see this as the fin­an­cial­isa­tion of pub­lic assets, oth­ers as a fin­an­cing tool made pos­sible by the technique.

Bey­ond gov­ern­ment bonds, oth­er pub­lic assets could be involved, not­ably pub­lic prop­erty, net­work infra­struc­ture, wind farms or trans­port, fol­low­ing a logic of secur­it­isa­tion and the bring­ing to mar­ket of future income.

Interview by Aicha Fall