Europe's Tokenized Settlement Struggles with Regulatory Complexity
Tokenized settlement in Europe has been touted as a way to settle trades instantly, but experts say it's more complex than it seems. Sebastien Dessimoz, co-founder and managing partner of Taurus, says that atomic settlement requires not just the asset and cash to change hands simultaneously, but also for both legs of the trade to be genuinely on-chain and legally final.
According to Dessimoz, most projects struggle with settling the 'cash leg' of a trade, which falls under different regulatory regimes depending on its form. A tokenized security is a financial instrument subject to MiFID II and securities rules, while a regulated stablecoin is an e-money token under MiCA, and wholesale central bank money sits with the central bank.
The practical consequence of this complexity is that most projects rely on multiple parties, each authorized for their own piece of the trade. This adds legal, operational, and interoperability complexity to what's meant to be an instantaneous process. Dessimoz estimates it will take three to five years for some instruments to reach routine same-instant settlement.
The European Central Bank is working on settling distributed ledger transactions in central bank money, which would provide true finality. However, this requires changes in both regulation and market infrastructure, including making the DLT Pilot Regime permanent and lifting its volume caps.