Tokenised collateral is an asset pledged to secure an obligation that is represented as a digital token on a distributed ledger, so that the pledge can be created, moved and released by transferring the token. The underlying asset is typically government bonds, shares in a money market fund, cash deposits or gold, held by a custodian while the token records who is entitled to it. It has been used for repo and derivatives margin.
The aim is faster and more precise movement of collateral. Conventional transfers depend on the opening hours and settlement cycles of securities depositories, whereas a token can change hands in minutes, at any hour, and in exact amounts. This supports intraday margin calls and can reduce the buffers firms hold. Legal certainty over the pledge, the recognition of tokens under collateral eligibility rules, collateral valuation and links between separate ledgers remain the main open questions. It is one use of tokenization.