The digital transformation of financial markets is accelerating rapidly. It is essential for making transactions more efficient, enhancing transparency, and paving the way for innovative financial services. Until recently, however, automation and process optimization in capital markets were constrained – largely by siloed data systems. Applying new technologies, especially distributed ledger technology (DLT) – in simple terms, a shared and immutable database – makes it possible to digitalize securities processes end to end and reduce redundant intermediate steps.

In Germany, a key milestone in making the technical capabilities of digitalized financial markets more feasible was the introduction of the Electronic Securities Act (eWpG) in 2021. For the first time, it allowed for the complete replacement of physical securities certificates and became a catalyst for digitalization and innovation initiatives. At the same time, the eWpG was the next logical step in the evolution of market infrastructure that has been underway since the 1980s.

Building the bridge

The eWpG established two categories of electronic securities: central register securities, based on established technologies; and crypto securities, which enables the use of new technologies such as DLT. Issuers are free to choose whether to issue a security in physical or digital form. This optionality creates a bridge from today’s system to a fully digital securities market. KfW is actively shaping this transition as a market developer: 

• As a leading participant in digital capital market infrastructure, KfW has successfully transitioned to issuing central register securities. Following an initial pilot issuance in 2022, it began scaling electronic securities issuance from 2024 onward. Beginning in 2025, all euro benchmark bonds will be issued as central register securities. Via Clearstream’s D7 platform – a fully digital infrastructure – KfW has already issued more than €30 billion in bonds in central register form – a success story for the digital capital market in Germany. D7 demonstrates how automated workflows can accelerate settlement, reduce risk, and unlock new efficiency potential.
• In parallel, KfW is systematically expanding its expertise in crypto securities. The first blockchain-based digital bond was issued in July 2024, followed by another transaction in August focused on payment processing. Pilot projects like these help to resolve technical and legal issues while building confidence in DLT. They also show what conditions need to be met before DLT can be used more widely in the future. In collaboration with KPMG, KfW has also published a comprehensive paper summarizing insights and lessons learned, with contributions from numerous project partners.
• Since 2025, the focus has shifted more towards the investor perspective. KfW is participating in DLT issues by other institutions, such as the digital Pfandbrief issued by Berlin Hyp and the DLT-based bond issued by NRW.BANK. This is complemented by insights from Switzerland, where DLT-enabled central bank money has already been used.

Key requirements for the usability of DLT-based securities

The full benefits of DLT-based securities can only be realized if every step in the process – from issuance to settlement – works together seamlessly. This requires a number of conditions to be met. I would like to highlight two examples:

1. Uniform standards and data models: Processes can only be reliably automated if everyone uses the same “language.” The Issuance & Processing Taxonomy (IPT) developed by Clearstream and Euroclear is providing key impetus in this area and will be supplemented by a DLT component.
2. Open and market-neutral platforms: We need interoperable infrastructures that are open to different market participants across Europe and strengthen technological sovereignty. Projects such as Regulated Layer One (RL1) therefore make a decisive contribution to strengthening Europe’s digital sovereignty.

Europe’s capital markets are firmly on a path of progress. DLT and tokenization are not short-term trends but will have a lasting impact on the financial sector.. The European Central Bank is developing ways to settle DLT-based securities in central bank money, as shown by its Pontes and Appia projects, while ESMA has highlighted the significance of the EU’s DLT Pilot Regime and called for its permanent integration. The European Commission is also drawing market participants into its Savings and Investment Union agenda, promoting open consultations on DLT and tokenization.

Perhaps the clearest signal yet comes from Deutsche Börse Group and Clearstream, which plan to tokenize around €20 trillion in assets under custody by the end of 2026 – a step that could dramatically speed up market adoption.

The expansion of DLT-based financial markets is already far more than a purely technological innovation. It creates transparency, efficiency and speed, and is therefore a central pillar of digital sovereignty and a modern European capital market. KfW sees this transformation both as an opportunity and a responsibility: to actively shape the digitization of capital markets and to help build the necessary ecosystem alongside established and new market participants. The future of the European capital market is digital, interoperable, and resilient – the time to act is now. 
 

Stefan B. Wintels is CEO of KfW.