Britain’s leading banks have completed the first transactions using tokenised deposits to transfer money between institutions, marking a significant milestone in the adoption of blockchain technology for commercial banking. The initiative, driven by the industry group UK Finance, aims to create a blockchain-based version of bank money that proponents say could offer a safer and more efficient alternative to stablecoins.

For years, financial institutions have explored integrating blockchain technology by representing traditional assets—such as deposits, stocks, bonds, and currencies—as crypto tokens. However, the lack of interoperability among banks’ individual blockchain platforms has hindered the ability to transact across institutions.

The recent milestone involved Lloyds, NatWest, and Barclays successfully executing two mortgage transactions using tokenised deposits, according to UK Finance. Separately, a group of banks including HSBC conducted a simulated person-to-person transaction representative of an online marketplace purchase. This pilot, known as the “Great British Tokenised Deposit” project, follows a commitment made by participating banks last year to explore the potential of tokenised bank money.

Financial institutions involved in the project highlighted that using tokenised assets could reduce transaction costs and improve efficiency compared to existing payment systems. The Bank of England has expressed support for innovation using tokenised deposits, preferring it over stablecoins—crypto tokens backed by fiat currencies issued typically by private companies. Unlike stablecoins, tokenised deposits carry the same legal standing as standard bank account funds and remain within the regulated banking framework, which helps address concerns related to credit costs and monetary sovereignty.

In the simulated online transaction, tokenised deposits allowed programmable payments where funds were held in the buyer’s account and automatically released to the seller only upon confirmation of goods received. Jana Mackintosh, managing director for Payments and Innovation at UK Finance, said this functionality demonstrates the potential for reducing fraud and enhancing trust in digital transactions.

The banks also completed two remortgage deals utilizing tokenised deposits, where funds were automatically unlocked once the property transactions were finalized, further illustrating the technology’s practical applications in complex financial processes.

These developments represent a breakthrough in bridging traditional banking and distributed ledger technologies, signaling a potential shift in how commercial bank money could be managed and transferred in the future.