Tokenisation and ALM: a collateral story

For asset liability management (ALM)-heavy institutions and insurers, the clearest near-term value lies not in return enhancement or access to new asset classes, but in collateral efficiency: faster settlement, improved collateral mobility, more responsive liquidity sequencing and reduced reliance on cash transformation.

The strongest institutional use cases are emerging where tokenisation solves an existing financial-resource problem rather than simply creating a new digital wrapper. When tokenised high-quality liquid assets (HQLA) and cash equivalents can be recognised, controlled, valued, transferred and enforced as collateral, the economic impact is capable of being quantified and is most valuable when markets are under stress.

This is increasingly a collateral and ALM story rather than a technology story, because it affects how firms preserve eligible assets, manage margin pressures and avoid unnecessary disruption to strategic portfolios. The debate has moved beyond whether tokenisation can work technically, and onto whether legal frameworks, operating models, market infrastructure and central counterparties (CCPs) are ready to treat eligible tokenised assets as collateral that can be used at scale.

What matters now is less whether the technology works and more which operating model can support institutional scale. The ecosystem is broad: regulated asset issuers, custodians and triparty agents, trading banks and counterparties, CCPs and other market infrastructures, legal and documentation specialists, and digital-asset providers capable of issuance, transfer and control.

The constraint is no longer whether a token can be created, but whether it can be recognised, controlled, valued, transferred, enforced and reported within the same governance framework as existing collateral. For prospective partners, the opportunity lies not in creating more tokenised assets but in removing friction between these functions and making eligible collateral easier to use at scale.

For institutions with large derivative books, the benefit is lower liquidity friction in meeting daily and intraday liabilities, without changing economic exposure or investment strategy. For insurers, the utility is most valuable where tokenisation supports existing ALM discipline: meeting collateral demands without forced sale of strategic assets, preserving income on liquidity portfolios, and improving responsiveness in periods of stress without altering long-term liability matching. The attraction is not digital novelty, but balance-sheet utility.

Quantifying the economics: measurable, but not yet fully industrialised

1. Faster settlement = lower liquidity buffer costs

Under current collateral models, institutions maintain conservative liquidity buffers to bridge settlement timing gaps between margin calls and monetising the asset. These buffers are not risk assets, but they are not free.

Indicative economics (mid to large ALM heavy institution):

Daily variation margin flows: GBP500 million–5 billion

Liquidity buffer held purely for settlement timing mismatch: 5 - 10%

Cost of liquidity (internal funds transfer pricing (FTP) / secured funding): 50–100 basis points (bps)

If instantaneous settlement allows even a 5% reduction in liquidity buffers:

GBP1 billion average variation margin × 5% = GBP50 million buffer released

GBP50 million × 75 bps = GBP375,000 annual saving

Across desks, currencies and products, firms can typically achieve GBP2 million–10 million a year in recurring liquidity efficiency from faster, deterministic settlement alone.

2. Eliminating forced sales of MMFs

Today, margin calls are frequently met by redeeming MMF units or selling short dated government securities to raise cash, only to repurchase them when margin is returned. This is economically inefficient but operationally embedded.

Tokenised MMFs enable a structurally different outcome: transfer of the asset itself as collateral, preserving yield and avoiding market impact.

Indicative per cycle saving:

Avoided MMF bid ask / redemption friction: 3–8 bps

Avoided interim yield interruption: 1–5 bps (equivalent)

For a GBP500 million margin call:

GBP500 million × 5 bps = GBP250,000 saved per cycle

During volatile periods, institutions may experience 20 to 50 such cycles annually, resulting in GBP5 million–15 million per year in avoided transaction and opportunity costs, concentrated exactly when liquidity is most valuable.

3. Operational and dispute cost reduction

Collateral management remains arguably the most operationally intensive functions supporting derivative books. Fragmented custody records, manual reconciliation and eligibility disputes create cost without creating value.

Tokenised collateral introduces a single, time stamped record of ownership with programmable eligibility and haircut logic. This enables straight through processing from margin call to settlement.

Indicative impact:

Annual collateral operations cost (large institution): GBP20 million–50 million

Portion attributable to reconciliation, disputes and substitutions: 20–30%

Automating even 25% of this activity equates to:

GBP5 million–8 million annual operating expenditure reduction, recurring and low risk

Aggregate view (conservative) 

These estimates assume partial adoption, selective use cases and no change to regulatory margin models. They should be read as a framework for quantifying the opportunity rather than evidence of market-wide realised benefits today. Broader CCP acceptance, legal certainty, settlement-asset clarity and regulatory treatment would amplify these benefits over time.

What good looks like for clients

For clients assessing whether tokenisation is worth pursuing, the best starting point is not the asset wrapper but the operating problem. Demand is not yet broad-based, but it is becoming more targeted. The strongest early use cases tend to share the same features: a recurring collateral or liquidity friction, assets already held in size, and a governance environment willing to engage where the economics are visible and the control framework can be defined. 

Where the ecosystem still needs help

For prospective partners, the opportunity extends beyond tokenisation itself. It lies in using tokenisation to address the practical frictions that continue to impede institutional adoption. . Clients do not need more isolated pilots; they need confidence that tokenised assets can move through legal agreements, collateral schedules, custody chains, valuation processes and governance committees with the same reliability as existing instruments. 

Why tokenisation matters for ALM today

This is not about chasing technological novelty. It is about identifying where institutions are already paying to move collateral inefficiently and where a tokenised operating model can remove that friction without weakening governance, control or investment discipline.

Faster collateral mobilisation improves intraday liquidity sequencing, reduces pro-cyclicality during stress and allows assets already held for ALM purposes to work harder without increasing risk. That is why the most credible market developments are tied to real collateral flows, regulated counterparties, market infrastructure and existing asset pools such as tokenised MMFs and gilts. The commercial opportunity is unlikely to come from charging a tokenisation premium. It is more likely to come from helping clients preserve liquidity, avoid avoidable transaction friction and access a more resilient collateral operating model.

Why Aberdeen?

For clients assessing how tokenisation may sit alongside ALM, Aberdeen is relevant because we can connect the investable asset, the collateral use case and the ALM consequence. Our perspective is informed by live work in regulated markets, a clear view of the evolving regulatory perimeter, and the practical constraints institutions face when moving from concept to implementation. 

Our approach is commercially grounded and outcome-driven. The aim is not to force tokenisation into every portfolio process, or to treat it as a standalone technology implementation, but to identify where it can improve collateral mobility, reduce friction and strengthen resilience without adding unnecessary complexity.

The institutions likely to be best positioned over the next five years will be those with clarity on legal structure, collateral eligibility, partner architecture and liability management. Aberdeen’s role is not simply to comment on that evolution, but to help clients and ecosystem partners identify where tokenisation is genuinely useful, what a credible implementation path looks like, and which collaborations are most likely to scale as regulation, infrastructure and CCP treatment continue to converge.

Key takeaways