Central Bank of Ireland publishes Discussion Paper on DLT & Tokenisation in financial services

On 5 March 2026, the Central Bank of Ireland (CBI) published Discussion Paper 12 on DLT and tokenisation in financial services.

The paper examines the benefits, risks and enabling conditions for the deployment of distributed ledger technology (DLT) and tokenisation across the Irish and European financial system, with a particular focus on investment funds, including money market funds (MMFs) and exchange-traded funds (ETFs). It sets out four detailed use cases and poses 16 questions for stakeholder consultation, with responses due by 5 June 2026 after which the CBI intends to publish a feedback statement. This article summarises the key points relating to investment funds.

The CBI believes that DLT and tokenisation, “if enabled and deployed correctly”, can change the financial system for the better, including by helping the EU deliver on its objectives to integrate and deepen its financial markets.

What is DLT and tokenisation?

The CBI explains that DLT can be understood as a technological solution that achieves a single, shared “source of truth” through a common ledger, replacing multiple independent ledgers with a synchronised digital record in which transaction data are shared, validated, and replicated across a network.

For the purposes of the discussion paper, tokenisation refers to the issuance or representation of assets in the form of digital tokens, using technologies such as DLT. The CBI considers two types of tokenised assets:

1. those issued solely or directly on DLT by the issuer (sometimes referred to as “digitally native” tokens)
2. those that are digital representations of existing assets that have originally been issued elsewhere (sometimes referred to as “non-native” tokens).

The CBI also highlights that DLT systems can be public or private, permissioned or permissionless and that they can enable the operation of smart contracts.

Benefits of tokenisation

The CBI notes that tokenisation “offers the potential to transform the underlying infrastructure of finance” by making financial services more efficient, transparent and accessible, as well as to lead to the provision of new, innovative financial services. It highlights potential benefits in settlement efficiency, increased opportunities for financial innovation, improved transparency and auditability through immutable records, and greater integration of European capital markets.

Realising the benefits

The CBI highlights several key enablers that, from a public policy perspective, are important to leveraging the benefits of DLT and tokenisation. These include clear legal and regulatory frameworks (particularly around ownership, settlement finality and smart contracts), robust interoperability and common standards to avoid fragmented systems, the availability of tokenised assets and tokenised forms of money to support atomic settlement, and the continued central role of central bank money. The CBI also emphasises the importance of operational resilience, reliable digital identity frameworks, and transparent and accountable governance arrangements.

Tokenisation in Funds

The Department of Finance’s Funds Review 2030 recommended developing a pathway for tokenisation, and Irish authorised funds and their managers have increasingly explored tokenisation over the past 18 months. This initial phase has primarily sought to achieve this through “digital twin” representations of fund units, as distinct from a future state involving the tokenisation of the underlying assets or digitally native tokenisation of instruments within digitally native fund portfolios.

Investment funds depend on accurate and timely processing of subscriptions, redemptions, transfers and corporate actions, involving complex data flows between fund managers, administrators, transfer agents, depositaries and distributors.  The CBI highlights that tokenisation may allow certain elements of these workflows to be automated through programmable rules embedded in tokenised fund units, such as eligibility checks, dealing cut-offs or class-specific fee structures, and could facilitate more consistent data across participants by reducing duplication of records.

Liquidity management

The CBI notes that in a digitally native future state, tokenisation may affect both the perceived and actual liquidity of fund units, with implications for liquidity transformation and the use of liquidity management tools (LMTs). It notes that LMTs such as swing pricing, anti‑dilution levies, redemption gates and notice periods are potentially more complex to apply in a tokenised environment but tokenisation may enhance the timeliness and consistency with which they are applied. The CBI emphasises that tokenisation does not diminish the importance of liquidity risk management and may, in some cases, increase the need for clear and robust liquidity management frameworks.

The CBI outlines how LMTs could operate within tokenised workflows, and new risk and policy considerations aimed at ensuring that tokenisation does not weaken existing liquidity risk controls. It notes that legal clarity is required to ensure that LMTs implemented through tokenised mechanisms are enforceable and cannot be bypassed.

Potential use cases for tokenisation in funds

What is perhaps most revealing is some of the assumptions the CBI made in outlining the operational model for the use cases. It is important to note that the paper does not represent CBI guidance but nonetheless may be informative.

The CBI envisages that the permissioned ledger would be operated by regulated entities, including the fund administrator and transfer agent. This points to a future state where fund administrators operated the tokenisation ledger either directly or through outsourcing.

Investors would access the fund through regulated distributors and tokens would be held in digital wallets operated by regulated entities (e.g. credit institutions, investment firms or financial market infrastructures).

For tokenised Money Market Funds MMFs (TMMFs), token transfers would be permitted only during defined dealing windows aligned with the fund’s NAV calculation cycle. This design is intended to ensure that tokenisation does not introduce secondary market activity inconsistent with the fund’s liquidity profile and guard against the risk of deviation between traded price and NAV. However, this assumption may not be compatible with certain use cases that require unencumbered transferability.

Money Market Funds (MMFs)

The discussion paper highlights rapid growth in TMMFs from approximately $770m at the end of 2023 to nearly $10bn by the end of 2025.

The CBI outlines some use cases where TMMFs could be used in practice.

Exchange-Traded Funds (ETFs)

For ETFs, the discussion paper notes that tokenisation may blur distinctions between traditional open-ended funds and ETFs as a tokenised fund may replicate some of the features of ETFs such as transferability and improved liquidity. However, differences in transparency, pricing frequency and liquidity provision between ETFs and tokenised mutual funds could give rise to investor confusion and misaligned expectations and could increase competitive pressure between fund structures. The CBI stresses the importance of preserving the role of Authorised Participants and the effectiveness of the arbitrage mechanism that underpins ETF liquidity and price alignment with NAV.

The following use cases are outlined:

Other areas and risks

Beyond funds, the discussion paper explores tokenisation across market infrastructure, instrument‑level and portfolio‑level tokenisation, and tokenised payments. It highlights the Eurosystem’s Pontes and Appia initiatives for DLT‑based settlement in central bank money as foundational to integrating tokenised assets into the broader financial system. Risks identified include disintermediation of regulated intermediaries, new concentration and governance risks, smart‑contract vulnerabilities, hybrid model integration risks and challenges for supervision.

For more information, please contact any member of the ALG Asset Management & Investment Funds team.

With thanks to Eoghan O'Connell  for his assistance in the preparation of this article.

Date published: 24 March 2026