Bank of England and BIS Innovation Hub Conclude DLT Innovation Challenge 2025

The Bank of England and the BIS Innovation Hub London Centre have released a final report on their joint DLT Innovation Challenge, which explored the application of distributed ledger technology to wholesale payments and settlement. The initiative examined how technical design choices in DLT platforms affect financial market utility and public policy priorities, such as settlement finality and operational resilience. This research is intended to inform the responsible adoption of tokenized assets and the potential for settling wholesale transactions in central bank money within a digital economy.

The DLT Innovation Challenge engaged a wide array of financial institutions, technology providers, and academic experts to test DLT solutions across four primary themes: settlement finality, scalability, network control, and interoperability. The findings suggest that DLT could facilitate faster, cheaper processes with fewer intermediaries and shorter settlement windows, provided that the technology can match the resilience and governance standards of traditional regulated infrastructure. The Bank of England emphasized that settling transactions in central bank money remains a priority for maintaining market liquidity and financial stability as the private sector continues to tokenise money and assets.

Regarding technical performance, the challenge demonstrated that while constrained validator sets and alternative consensus designs can enhance settlement speed, they introduce trade-offs between determinism, resilience, and decentralization. No single model was found to deliver fast, deterministic finality without altering trust assumptions, highlighting the need for careful alignment with wholesale payment standards. Similarly, scalability solutions such as Layer 2 execution and horizontal scaling were shown to increase throughput but added complexity that could impact governance and operational security.

The report also addressed network and asset control, noting that effective compliance can be implemented via on-chain permissions or middleware, though more open designs rely heavily on smart contracts or decentralized governance. Interoperability was identified as a critical factor in avoiding liquidity fragmentation, with participants testing bridges and orchestration layers to connect DLT platforms with non-DLT systems like real-time gross settlement (RTGS). While these solutions enable interaction across diverse networks, the Bank noted that they often shift operational dependencies rather than eliminating them, requiring ongoing collaboration to ensure a robust and sustainable financial system.