BNY, the world's largest custody bank, and market maker Citadel Securities said Tuesday they completed a transaction using tokenized U.S. Treasuries, demonstrating that blockchain-based government bonds can move directly from settlement into financing.

The test targets one of the most persistent operational bottlenecks in institutional markets. Banks and trading firms pledge U.S. government bonds as collateral to secure short-term loans and fund trading activity. Moving those bonds between accounts and settlement systems takes time, and during that interval the assets sit idle instead of being redeployed.

What does the transaction actually change? For practitioners, the answer lies in collateral velocity. The demonstration showed that a tokenized representation of a Treasury can carry through both legs of the trade lifecycle — settlement and financing — without the asset being parked between systems. Firms could, in principle, reuse collateral sooner and free up cash for other trades.

"Efficient movement of high-quality collateral is fundamental to well-functioning markets," said Dan Doherty, digital assets operations lead at Citadel Securities, in a statement. He added that reducing delays across the trade lifecycle could improve how institutional markets operate.

The pilot sits within a broader institutional shift. BlackRock, Franklin Templeton and JPMorgan have all adopted tokenized funds and securities, wagering that distributed-ledger infrastructure can shorten settlement windows, automate post-trade processes and make assets easier to move between venues.

What comes next at BNY

BNY said it plans to introduce additional digital cash and tokenized deposit capabilities to support blockchain-based settlement and financing. In parallel, the bank intends to extend operating hours of its traditional settlement systems for Federal Reserve-eligible securities and U.S. triparty transactions, with the aim of reaching European and Asian trading hours next year.

Triparty transactions are a form of short-term financing in which a bank manages collateral between borrowers and lenders. Extending those hours matters for the same reason tokenization does: collateral trapped outside the trading day is capital that cannot work.

"By using a tokenized representation of a U.S. Treasury across both settlement and financing, we are enabling a more connected, efficient and always-on financial system," said Carolyn Weinberg, chief innovation and market transformation officer at BNY, in a statement.

The two tracks — tokenized collateral on one side, longer settlement hours on the other — converge on the same objective: continuous collateral mobility. For collateral desks and repo traders, the near-term consequence is a shrinking window between settlement and reuse, which compresses the cost of funding positions.

BNY's stated target of covering European and Asian trading hours next year sets the first measurable deadline for when around-the-clock settlement becomes testable in production rather than in a pilot.