A new report from the Association for Financial Markets in Europe (AFME) indicates a marked divergence in capital markets: while sectors like stablecoins and repo show impressive growth driven by U.S. innovations, fixed income issuance is witnessing a sharp decline following the conclusion of the Eurosystem’s wholesale Distributed Ledger Technology (DLT) settlement trials. As initiatives like Project Pontes emerge on the horizon, the landscape of financial technology continues to evolve amidst these contrasts.
AFME Report Highlights Dynamic Trends
The AFME’s semi-annual progress report paints a clear picture of an evolving DLT market. It shines a light on a robust increase in sectors such as stablecoins, repo transactions, and tokenized money market funds, all driven primarily by U.S. progress in financial technologies. DLT fixed income issuance skyrocketed to €3 billion in 2024, showcasing a staggering 260% increase from the previous year, yet it must be understood within the broader context of fluctuating market dynamics.
In addition to the fixed income surge, tokenized funds globally registered over €2.1 billion in assets under management, with the U.S. leading this charge. This shift not only signifies the growing acceptance of blockchain technologies in mainstream finance but also showcases a shift toward digital assets that promise enhanced efficiency and transparency, hallmarks of DLT solutions.
Fixed Income Issuance Trends Present Challenges
Despite the promising figures in DLT-adjacent sectors, the fixed income market has faced significant setbacks. In the first three quarters of 2025, total fixed income issuance plummeted to €1.7 billion compared to €3.25 billion in 2024. This dramatic drop was largely due to the cessation of the Eurosystem’s DLT settlement trials, which previously accounted for nearly a third of the issuance in the preceding year. As noted in the report, “Market demand for the Eurosystem’s exploratory work was high,” but the lack of continued trials left a void in issuance momentum.
An analysis of the data reveals that while growth in DLT issuance appeared robust overall, traditional fixed income markets are struggling to recuperate from this abrupt shift. For instance, green DLT bonds, which mustered €483 million in 2024, represented 16% of global DLT fixed income issuance, indicating a nascent yet influential segment within a broader context of decline.
Eurosystem DLT Trials: A Defining Moment
The Eurosystem conducted critical trials from May to November 2024, involving 64 participants and culminating in settlement of €1.59 billion in central bank money. These trials highlighted several digital bond issuance success stories—one notably being Siemens AG’s €300 million digital bond, showcasing DLT’s atomic settlement capabilities. However, these trials also ended without definitive continuations, leading many market players to express concerns over the future sustainability of DLT initiatives.
The European Central Bank (ECB), responding to these developments, announced plans to expand DLT settlement initiatives through a two-track approach that balances short-term interoperability with long-term solutions. As stated by the ECB, “The Governing Council decided… to expand its initiative to settle transactions recorded on DLT in CeBM,” indicating a recognition of the need for ongoing innovation despite recent declines.
A Promising Yet Perilous Future
Looking ahead, the initiation of Project Pontes set for late 2026 signals a new chapter for DLT in capital markets. This pilot phase represents a concerted effort to reestablish momentum following the recent downturn in traditional issuance. Proponents believe that despite challenges surrounding regulatory compliance and system interoperability, the potential for cost savings and operational efficiencies remains significant. As one expert succinctly pointed out, “DLT has the potential to revolutionize processes in capital markets, creating new opportunities for market participants.”
While the potential is palpable, market players must navigate a landscape marked by rapid technological evolution and varied regulatory environments. Whether DLT can emerge as a mainstream solution or whether traditional financial instruments will reclaim dominance remains to be seen.
The Road Ahead: Embracing Transformation
The juxtaposition of rapid growth in certain DLT sectors against the backdrop of declining fixed income issuance offers a unique lens through which to assess the future of capital markets. As the financial landscape continues to evolve, stakeholders must leverage strategic insights gained from trials like those conducted by the Eurosystem. Moving forward, embracing innovative technologies, while addressing underlying challenges, could usher in a new era marked by enhanced market efficiency and resilience.
