Digital money needs interoperable settlement rails, Lynq CEO says

Lynq CEO Jerald David has said institutional finance needs interoperable settlement systems capable of moving cash and collateral 24/7 as firms adopt several forms of digital money.

In comments shared with crypto.news, David said the Bank of England’s latest digital pound experiment gives an early indication of how institutional markets may use several forms of digital money instead of choosing one option.

“I do not expect a single form of digital money to replace all others,” David said.

“Stablecoins, tokenized deposits, tokenized money market funds, potentially CBDCs, and traditional bank money are all likely to have different roles depending on the counterparty, jurisdiction, and type of transaction.”

His comments follow an Aug. 12 report detailing how NOBO Finance, Dun & Bradstreet, and Polygon Labs joined Phase 2 of the Bank of England’s Digital Pound Lab. The consortium is testing whether a stablecoin and simulated digital pounds can handle separate parts of the same cross-border trade-finance payment.

Under the test, an exporter receives an advance through a stablecoin payment system while a UK importer completes the final settlement in simulated digital pounds. Polygon Labs said both parts are coordinated within one transaction flow, allowing the experiment to study whether private and central bank money can operate together without one side waiting for the other.

Separate settlement rails can restrict institutional capital

Rather than treating the experiment as a contest between stablecoins and a central bank digital currency, David focused on the infrastructure connecting different forms of money. Institutions may have enough capital overall, he said, but the funds may not be available in the required form, market, or jurisdiction when a transaction must settle.

“The challenge arises when these different forms of money operate on separate rails. An institution may have sufficient capital available, but not necessarily in the right form or in the right place at the point it is needed.”

According to David, fragmented systems can create problems across funding, collateral management, and settlement. Firms may respond by placing funds in advance at several trading venues or with multiple counterparties, tying up capital that could otherwise remain available for other transactions.

The problem extends beyond converting one digital currency into another. A financial institution may hold bank deposits for regular business, stablecoins for blockchain transactions, and tokenized money market fund shares for managing short-term liquidity. Each instrument can serve a separate purpose, but David said institutions still need a way to move value between them when obligations arise.

Polygon described a similar problem when announcing its involvement in the Bank of England experiment. The company said bank money, stablecoins, tokenized deposits, and a possible digital pound currently operate through systems that do not communicate easily.

Polygon is supplying the stablecoin settlement component and related smart-contract infrastructure through its Open Money Stack. The simulated digital-pound portion remains on the Bank of England’s demonstration ledger rather than moving onto Polygon.

Why 24/7 trading requires continuous settlement

As digital asset markets trade without closing, David said the difference between trading hours and settlement hours has become more important for institutions. Crypto markets operate through nights, weekends, and public holidays, while bank transfers and parts of the traditional settlement system remain subject to operating schedules and daily cut-off times.

“If assets can trade around the clock but cash and collateral cannot move on the same basis, only part of the problem has been addressed,” David said.

An institution facing a margin call outside banking hours may own enough cash or liquid assets to meet its obligation. David’s argument, however, is that the capital offers limited help if the firm cannot transfer it to the required counterparty before traditional payment systems reopen.

Lynq encounters the mismatch in institutional digital asset markets, according to David. The company operates a broker-dealer-run settlement network intended for institutions that need to earn yield, transfer funds, and settle digital asset transactions.

“At Lynq, we encounter this mismatch directly in institutional digital asset markets,” he said. “The practical issue is not so much creating another form of digital money, but ensuring that capital can move to where it is required, at the time it is required.”

U.S. banks are also developing products intended to extend settlement beyond normal hours. An Aug. 4 report on Wells Fargo tokenized deposits said the bank plans to begin with selected corporate clients using a U.S. dollar-to-British pound corridor.

Wells Fargo said its planned service would allow participating clients to transfer, program, and settle funds around the clock on the bank’s blockchain platform. The initial release is expected to expand to additional clients, countries, and currencies during 2027.

Institutions are developing several forms of digital money

David’s expectation that different types of digital money will coexist is also visible in projects under development at major banks. Stablecoin issuers provide tokens backed by reserve assets, while tokenized deposits remain liabilities of the commercial banks that issue them.

During June, major U.S. banks backed plans for a shared tokenized-deposit network scheduled for 2027. The project involves JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo as banks seek to provide blockchain-based payments without moving customer deposits outside the banking system.

According to the participating institutions, a shared network could allow bank-issued digital money to move among participating lenders instead of remaining confined to one bank’s internal system. Such arrangements still require common technical, legal, and compliance standards before deposits issued by separate banks can work together.

Stablecoins provide another route by allowing tokens to move across blockchain networks and jurisdictions. However, David said the form an institution chooses may depend on the counterparty, applicable rules, and transaction type rather than one instrument proving suitable for every use.

Tokenized money market funds add a third option by placing shares in cash-management funds on blockchain systems. Institutions can use the products to hold assets that may earn a return, although transferring a fund share does not always provide the same function as transferring bank money or a payment stablecoin.

Central bank money would carry a different risk structure because a digital pound would represent a direct liability of the Bank of England. Commercial bank deposits remain claims on banks, while stablecoin holders depend on a private issuer and its reserve arrangements.

Bank of England tests a multi-money payment system

The Digital Pound Lab gives private firms access to a simulated environment containing application programming interfaces, wallets, a demonstration ledger, and separate smart-contract functions. According to the Bank of England, the lab uses no real customers or money and is not a regulatory sandbox.

NOBO Finance leads the consortium’s trade-finance design and a second workstream involving a portable credit profile for small businesses. Dun & Bradstreet contributes verified company identity and credit information, while Polygon supplies blockchain infrastructure intended to let the profile travel with the payment.

The trade-finance test uses invoice factoring backed by an electronic bill of lading. Under the proposed process, an exporter can obtain a stablecoin advance rather than waiting for the importer’s final payment, while the UK importer later settles the transaction with simulated digital pounds.

The Bank has not decided to issue a digital pound, and the participants’ designs do not indicate its eventual policy or the final structure of any CBDC. The Bank and HM Treasury are due to decide on the project’s next steps later in 2026, while any introduction of a digital pound would require Parliament to approve primary legislation.

Similar work is taking place at the international level. The Bank for International Settlements said its Project Agorá prototype showed that tokenized commercial bank deposits could settle against tokenized central bank reserves across jurisdictions. The project involves seven central banks and more than 40 financial institutions, with later trials expected to process transactions using real value.

For the Bank of England consortium, Phase 2 remains a controlled test rather than a live payment service. The Bank said participants develop their use cases over three months and share the results to inform its work on digital-pound technology, payment services, and possible business models for intermediaries.