Lynq CEO: Digital currency requires interoperability settlement track

Lynq CEO: Institutional finance needs an interoperable settlement system that supports the 7×24-hour flow of cash and collateral

Lynq CEO Jerald David said that as companies adopt multiple forms of digital currency, institutional finance needs an interoperable settlement system that can transfer cash and collateral around the clock.

Summary

Institutions may simultaneously use stablecoins, tokenized deposits, central bank digital currencies, and traditional bank funds. A separate payment system can prevent funds from being used where the organization needs them. The Bank of England is testing combining stablecoins and analog digital pounds in the same payment process. David said settlement infrastructure must keep pace with the market for round-the-clock trading.

David pointed out in a comment shared with a media outlet that the Bank of England's latest digital pound experiment initially revealed that institutional markets may use multiple forms of digital currency at the same time, rather than selecting just one. "I don't think a single form of digital currency can replace all other forms," David said. "Stabiloins, tokenized deposits, tokenized money market funds, potential central bank digital currencies, and traditional bank funds may all play different roles depending on counterparty, jurisdiction, and transaction type."

His comments followed an August 12 report detailing how NOBO Finance, Dun & Bradstreet and Polygon Labs joined the second phase of the Bank of England's Digital Sterling Laboratory. The alliance is testing whether stablecoins and analog digital pounds can handle different parts of the same cross-border trade finance payment. During the test, exporters received advance payments through the stablecoin payment system, while British importers completed final settlement in analog digital pounds. Polygon Labs said the two components were coordinated in the same transaction process, allowing the experiment to study whether private money and central bank money could work together without waiting for each other.

Independent settlement tracks may limit institutional capital

David does not view this experiment as a competition between stablecoins and central bank digital currencies, but focuses instead on the infrastructure that connects different forms of money. He said institutions as a whole may have enough capital, but when transactions need to be settled, the funds may not be available in the form needed, in markets or jurisdictions. "The challenge is that these different forms of money operate on independent tracks. Institutions may have enough capital, but they may not be in the right place in the right form when needed."

According to David, a fragmented system can cause problems in financing, collateral management and settlement. Companies may place funds in multiple trading venues or with multiple counterparties in advance, taking up capital that could otherwise be used for other transactions. The problem is not limited to converting one digital currency into another. A financial institution may hold bank deposits for daily business, hold stablecoins for blockchain transactions, and hold shares of tokenized money market funds to manage short-term liquidity. Each tool has its own purpose, but David said organizations still need to transfer value between these tools as obligations arise. Polygon described similar problems when announcing its participation in the Bank of England experiment. The company said bank funds, stablecoins, tokenized deposits and possibly digital pounds currently operate in systems that cannot easily communicate with each other. Polygon provides stablecoin settlement components and related smart contract infrastructure through its Open Money Stack. The analog digital pound portion remains on the Bank of England's demonstration ledger rather than being transferred to Polygon.

Why 7×24-hour transactions require continuous settlement

As digital asset markets trade around the clock, David said the difference between trading hours and settlement times has become even more important for institutions. The crypto market continues to operate at night, weekends and public holidays, while some aspects of bank transfers and traditional settlement systems are still limited by operating hours and daily deadlines. "If assets can be traded around the clock, but cash and collateral cannot be moved in the same way, then the problem is only half solved," David said. An institution that faces margin calls outside bank hours may have enough cash or liquid assets to meet its obligations. But David believes that if the institution cannot transfer funds to needed counterparties before the traditional payment system is reopened, the use of this capital will be limited.

According to David, Lynq encountered this mismatch directly in the institutional digital asset market. The company operates a broker-led settlement network for institutions that need to earn revenue, transfer funds and settle digital asset transactions. "At Lynq, we directly encounter this mismatch in the institutional digital asset market," he said. "The real problem is not creating another form of digital currency, but ensuring that capital can flow when and where it is needed."

Bank of America is also developing products that aim to extend settlement times beyond normal hours. An August 4 report on Wells Fargo's tokenized deposits stated that the bank plans to use the U.S. dollar/GBP channel, starting with selected corporate customers. Wells Fargo said its planned services would allow participating customers to transfer, program and settle funds 24/7 on the bank's blockchain platform. The preliminary version is expected to expand to more customers, countries and currencies in 2027.

Institutions are developing multiple forms of digital currency

David's expectation that different forms of digital currency will coexist is also reflected in projects being developed by large banks. Stabiloin issuers provide tokens backed by reserve assets, while tokenized deposits remain liabilities of the commercial banks that issue them. In June, several major U.S. banks backed a plan to launch a shared tokenized deposit network in 2027. The project involves JPMorgan Chase, Bank of America, Citibank and Wells Fargo, which seek to provide blockchain-based payments without moving customer deposits out of the banking system. According to participating institutions, the shared network could allow bank-issued digital currency to flow among participating banks rather than being limited to a bank's internal system. Such arrangements still require common technical, legal and compliance standards to allow deposits issued by different banks to work together.

stablecoins provide another way to allow tokens to flow across blockchain networks and jurisdictions. However, David said the form chosen by an institution may depend on counterparties, applicable rules and transaction types, rather than the suitability of a particular instrument for all purposes. Tokenized money market funds provide a third option, placing shares of cash management funds on the blockchain system. Institutions can use these products to hold assets that may generate returns, but transferring fund shares does not always provide the same function as transferring bank funds or paying stablecoins. The central bank's currency will have a different risk structure because the digital pound will represent the Bank of England's direct liability. Commercial bank deposits remain a claim on banks, while stablecoin holders rely on private issuers and their reserve arrangements.

Bank of England tests multi-currency payment system

The Digital Pound Lab provides private companies with access to a simulated environment that includes an application programming interface, wallet, demonstration ledger and independent smart contract functionality. According to the Bank of England, the laboratory does not use real customers or funds and is not a regulatory sandbox. NOBO Finance leads the alliance's trade finance design and a second workflow, which involves portable credit profiles for small businesses. Dun & Bradstreet provides verified company identity and credit information, while Polygon provides blockchain infrastructure designed to allow the file to flow with payments. Trade finance tests using invoice factoring supported by electronic bills of lading. Under the proposed process, exporters can receive advance payments in stablecoins without waiting for final payments from importers, who then settle transactions in analog digital pounds.

The Bank of England has not yet decided to issue digital pounds, and the participants 'design does not represent its final policy or the final structure of any central bank digital currency. The Bank of England and the Treasury are expected to decide on the next steps for the project later in 2026, while the introduction of any digital pound will require parliamentary approval of key legislation. Similar work is also being done at the international level. The Bank for International Settlements said its Agordá project prototype shows that tokenized commercial bank deposits can be settled across jurisdictions with tokenized central bank reserves. The project involves seven central banks and more than 40 financial institutions, and subsequent trials are expected to use real value to process transactions. For the Bank of England Union, the second phase will remain a controlled test rather than a real-time payment service. The Bank of England said participants will develop its use cases within three months and share results to inform its work on digital pound technology, payment services and possible middleman business models.