When Project Pontes launches in September it will provide two settlement options for DLT transactions, a wholesale CBDC-like cash token that lives on the Eurosystem’s own DLT, and a trigger solution that links the DLT to the TARGET2 (T2) payment system. People coming from a blockchain background might ask why an institution would use a trigger solution when they have a DLT option. In reality the trigger solution may prove more popular in the early days, and for good reason. One of the major drivers is settlement finality.
Settlement finality means a transfer cannot be reversed, challenged, or clawed back, even if the sender becomes insolvent moments later. Without it, neither the buyer nor the seller can be certain the transaction will stick. Under the Pontes framework, settlement finality for the cash leg is governed by the TARGET Guideline, and achieved when the corresponding transaction completes in T2. That matters because it means cash token transfers on the DLT do not currently carry final settlement. The ECB has signaled it intends to address this with an upgrade around mid 2027.
With a wholesale CBDC, settlement finality happens as soon as the digital currency is transferred. But the Pontes cash tokens are not a wCBDC. They are a TARGET2-linked token, a proxy for central bank money rather than central bank money itself.
An institution transfers money from its regular T2 account to a Pontes dedicated cash account, and tokens are minted against that balance. Those cash tokens can then circulate freely on the DLT during the day. Bank A can pay Bank B, and Bank B can use those tokens to pay Bank C, without touching T2 in between. But none of those on chain transfers amount to final settlement under the current legal framework. Finality is only achieved when there is a defunding event back to the T2 account, which involves burning the tokens. At launch, this defunding is only automatic at the end of the day.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.
