Collateral management is advancing onchain as Canton Network, the blockchain network for institutional digital assets, is connecting to Nasdaq Calypso and digital assets were also used as collateral for the first time in the UK – in a foreign exchange trade between Aberdeen Investments and Lloyds Banking Group.

In June this year Nasdaq announced it has facilitated end-to-end margin and collateral workflows on the Canton Network’s blockchain-based technology through Nasdaq Calypso, which provides front-to-back trade management solutions to manage risk, margin, and collateral needs.

Magnus Haglind, head of capital market technology at Nasdaq, told Markets Media: “Digital assets will be a cornerstone of future markets and tokenization will be a critical capability to help accelerate workflows and reduce operational friction. We are using the Canton network to help facilitate the orchestration of collateral calls in the over-the-counter (OTC) market.”

Haglind said Nasdaq has a strategy of innovating in partnership with the industry. He gave the example of  Nasdaq’s 15-year relationship with AWS (Amazon Web Services), in which the exchange group and technology provider has worked with market participants to accelerate migration to the cloud.

“History has shown that when you innovate in partnership with the broader industry you can drive genuine transformation,” added Haglind. “This is an ecosystem-oriented business so you need convergence towards a common understanding of where the industry is going.”

Canton has said it is the financial industry’s first and only public chain that can achieve onchain privacy, control, and interoperability which makes it the most suitable network for institutional assets. The network was initially built on technology from enterprise blockchain provider Digital Asset and its controls, governance, and app development have since been open-sourced and decentralized.

Yuval Rooz, co-founder and chief executive of Digital Asset, told Markets Media in an email that Canton’s integration with Nasdaq Calypso is a pivotal step in integrating large institutional players and crypto networks without forcing a reinvention of established processes. It enables firms to operate within the same legal and regulatory frameworks and workflows, whether it’s moving initial or variation margin governed by the same ISDA and CSA documents, but in real-time. He described the partnership as a major step toward harmonizing traditional and digital markets on a trusted, interoperable infrastructure.

“The goal isn’t to reinvent finance, it’s to allow it to function the way it was always intended: fast, transparent, and seamlessly integrated,” said Rooz. “These are the types of integrations that make the promise of blockchain real for global markets.”

The collateral use case was developed in partnership with QCP, one of the first digital asset trading firms in Singapore and a global market maker in digital asset derivatives, Primrose Capital Management and Digital Asset to demonstrate that integrating onchain capabilities alongside existing institutional workflows enhances collateral mobility across all asset classes for institutions.

Melvin Deng, chief executive of QCP, told Markets Media that the collateral use case is an exciting opportunity to set up technology that can be part of the financial market infrastructure of the future.

“I think it’s an important step towards 24/7 automated collateral movements but also reflects the thought leadership of Nasdaq in thinking about the future,” Deng added. “It’s really good to partner collectively and try to bring that forward.”

QCP believes in the thesis that digital assets will be on every balance sheet, and Deng said Canton and Calypso are building the technology that facilitates this future by allowing digital assets to be used as quality collateral.

Deng continued that the remaining challenges of moving collateral onchain will not be technical, but about getting buy-in and working with more partners to unlock the value from this technology, especially when collateral can move 24/7.  Another major challenge in bringing collateral management onchain, according to Rooz, has been reconciling blockchain transparency with the confidentiality required by financial institutions. Rooz argued that Canton was purpose-built to solve this challenge by offering configurable privacy, synchronized application workflows and scalability, which makes blockchain a viable solution for regulated markets by aligning with both operational and regulatory demands.

“Once there Is a working product, the industry will be able to see the benefits and there will be momentum,” added Deng. “The important next step will be putting up a minimum viable product, scaling use cases and creating network stability.”

Haglind said Nasdaq has very strong collateral management protocols that are used today in both the OTC and listed world, but they rely on traditional payment rails. The partnership with Canton allows Nasdaq to develop programmatic software for processes to happen outside normal banking hours, and more importantly, much quicker than today.

“Some people have seen blockchain as a technology looking for a problem but with settlement acceleration, 24×5 trading, there is a need to decouple settlement from traditional payment rails and improve collateral mobility,” Haglind added. “I’m excited that we are moving from proofs of concept or technology validation initiatives to real use cases.”

Through the partnership, Nasdaq Calypso will expand its capabilities to support automated 24/7 margin and collateral management across a full spectrum of assets, including crypto derivatives, fixed income, exchange-traded derivatives, and over-the-counter derivatives. It enables financial institutions to allocate capital more efficiently by mobilizing and redeploying previously locked up collateral across markets.

“I foresee there will be a number of different solutions or networks, so interoperability is going to be important over time and we have a leading role to play as a trusted party in the industry, based on our heritage and how we operate,” said Haglind.

Deng agreed that the roadmap for the Nasdaq/Canton partnership is to bed down this infrastructure to benefit the industry and that there will be  convergence between traditional finance and digital assets.

“This represents an aligned goal of improving financial markets,” Deng said. “We cannot forget the lessons we have learned in the banking sector so convergence has to be the path.”

Tokenized collateral for FX

Aberdeen Investments, Lloyds Banking Group and Archax said in a statement on 14 July 2025 that they completed the first use of digital assets is the UK.

Tokenized units of Aberdeen Investments’ money market fund and tokenized UK gilts were used as collateral for foreign exchange  trades between the fund manager and Lloyds. The digital tokens were issued, transferred, and securely held by Archax , the UK FCA-regulated digital asset exchange, on the Hedera Hashgraph public permissioned blockchain

Peter Left, head of digital finance at Lloyds Banking Group, said in a statement that this initiative proves that digital assets can be used in regulated financial markets under existing legal frameworks in the UK and that tokenization can enhance collateral efficiency, reduce friction and unlock new trading opportunities.

Graham Rodford, chief executive and co-founder of Archax, said in a statement: “This latest use-case for Nest, our permissioned DeFi collateral transfer network, highlights the power of regulated digital infrastructure to support institutional-grade needs.”

➡️ Why this matters?

FX derivatives market – swaps, forwards, options – generates a staggering $5.3T in daily volume, more than 2x the volume of the spot market, according to BIS.

And no place is more central to that volume than London, which processes nearly 40% of global FX…

— theRWAguy (@theRWAguy) July 14, 2025

➡️What banking executives are saying?

Emily Smart, Chief Product Officer of @aberdeenInv_UK says: “Tokenisation has long been seen as a key enabler in the new world of digital innovation. That’s why we aredelighted to collaborate with Lloyds and Archax"

Peter Left, Head of…

— theRWAguy (@theRWAguy) July 14, 2025

Collateral diversification

Steven Taylor, strategic product development at Zodia Custody, said in a blog that as digital asset infrastructure evolves, institutions are broadening their collateral mix to include yield-generating instruments such as tokenized money market funds.

“Held with custodians and pledged via tri-party arrangements, these instruments mirror exposure onto digital asset exchanges, enhancing transparency, security, and asset segregation,” Taylor added. “This signals a shift toward institutional-grade risk management standards rooted in conventional finance.”

In addition, institutions are increasingly pledging traditional collateral such as US Treasuries in support of digital asset trading activities which Taylor said reflects growing comfort among traditional institutions with blockchain-based markets and vice versa.

Taylor said: “As global regulators begin to offer clearer guidelines for digital assets, collaboration between crypto-native firms and traditional financial institutions is expected to deepen further, paving the way for hybrid models that blend the strengths of both sectors.”

He argued that regulated custodians and institutional structures improve risk management, asset protection, and operational standards, although centralized models may slow down the permissionless innovation that has propelled blockchain development.

“Ultimately, the challenge is to strike the right balance: adopt institutional infrastructure where it delivers value, while preserving the open, interoperable foundations that have made blockchain a force for financial innovation,” added Taylor.

Another institutional infrastructure, DTCC, the U.S post-trade infrastructure, demonstrated a new platform in The Great Collateral Experiment  in April this year to enable real-world, institutional-grade digital collateral market infrastructure.

Just watched @The_DTCC’s The Great Collateral Experiment — hands down the most compelling tradfi demo I’ve seen. Not just vision, but a live, working product showing how tokenised collateral can transform markets.

When the parent of the world’s largest CSD makes this move, it’s…

— Graham (@Grodfather) April 23, 2025

Rooz said DTCC’s focus on extending its market leadership to new digital services and collateral mobility is a timely transformation for the industry, representing the convergence of institutional trust with the capabilities of distributed ledger technology.

“At Digital Asset, we’ve always believed that enabling privacy, interoperability, and programmability is essential for financial institutions to safely modernize their operations,” said Rooz. “As more players introduce production-grade platforms, we’re witnessing a truly interconnected, efficient financial ecosystem emerge, where collaboration across initiatives isn’t optional, but rather, foundational to the future market structure.”

U.S legislators could also potentially pass the GENIUS Act this week, which provides a federal framework for stablecoins. Rooz said the legislation is important for the institutional adoption of digital assets by providing regulatory clarity, and elevating qualified stablecoins to the status of legal tender.

“This unlocks an entirely new class of collateral opportunities that were previously inaccessible, enabling stablecoins to be treated with the same legal and operational certainty as traditional fiat instruments,” said Rooz. “The Act’s strong backing from the current administration and the stance of regulators is providing a tailwind to our clients and industry, which is helping to bolster greater activity on this front.”