Bank of England: DLT for wholesale settlement involves trade-offs

The Bank of England and the BIS Innovation Hub London Centre ran a DLT Innovation Challenge over several months to test distributed ledger technology for wholesale payment and settlement. Participants included banks, technology firms and academic experts. The work examined four themes: settlement finality and security; scalability; network and asset control; and interoperability with other DLT platforms and non‑DLT systems, including real‑time gross settlement systems.

The exercise found no single DLT design delivers fast, deterministic finality without shifting where risk and trust sit. The Bank stated, “No single model delivers fast, deterministic finality without shifting risk or trust assumptions, highlighting the importance of carefully assessing how different designs align with the standards expected of wholesale payment and settlement systems.”

Participants showed several technical approaches can speed settlement finality, but each approach alters the balance among determinism, resilience and decentralization. Choices that improve speed or scalability can introduce new dependencies or operational risks, while approaches that increase decentralization can complicate governance and control.

On scalability, the Bank found DLT designs can raise throughput and reduce latency but often increase complexity and affect settlement finality, governance and operational resilience. The Bank noted that scalability choices cannot be considered separately from control and resilience requirements.

Interoperability tests showed linking DLT platforms to each other or to legacy systems often trades atomicity, flexibility and security against one another and can shift trust and operational dependencies rather than remove them. The report also highlighted questions about how to govern networks and the need for off‑chain components to support permissionless ledgers, and it recommended further work to assess integration options, including native connections or third‑party services.

Sarah Breedon, deputy governor for financial stability, commented that working across authorities, market participants and technology providers helped clarify how design choices in DLT platforms can support markets and authorities’ policy objectives, and that further work is needed as markets digitize.

The challenge produced a range of technical findings rather than a single recommended architecture. The Bank concluded that significant design trade-offs remain for wholesale settlement use cases and that further collaboration will be needed on governance, resilience and interoperability before wider adoption can be judged appropriate.