77% of Institutions to Use Tokenized Collateral by 2026

Citi Finds Widespread Institutional Demand for Tokenized Collateral

Citi's new report, prepared with The ValueExchange and published on September 24, signals a major shift in how large financial firms plan to manage collateral. According to the study, 77% of financial institutions expect to use some form of tokenized collateral during 2026 as banks, market infrastructures and technology providers move blockchain-based settlement and asset representation into production environments. The findings position tokenization as a practical response to long-standing operational frictions that prevent collateral from moving efficiently across global markets.

Key Findings at a Glance

• 77% of surveyed institutions expect to adopt tokenized collateral use cases by 2026.
• Around 25% of institutional collateral remains idle or unremunerated due to settlement windows and fragmented custody networks.
• Citi estimates a Tier 1 institution could forfeit roughly $346 million annually from inefficient collateral use.
• Tokenized cash, money market funds and government bonds emerge as primary candidates for digital collateral.
• DTCC's DTC Tokenization Service is scheduled for an October 2026 launch after successful production tests.

Why These Figures Matter for Crypto and TradFi Audiences

These data points matter for both traditional finance and crypto-native audiences because they underscore an inflection point: tokenization is moving beyond proofs of concept into real-world institutional workflows for margin, repo, securities lending and settlement. For crypto markets, broader adoption strengthens interoperability between centralized and decentralized liquidity pools. For traditional players, tokenization promises faster, more deterministic movement of collateral while preserving legal rights and investor protections.

The Idle Collateral Problem: Scale and Cost

Large financial institutions operate sizeable collateral pools distributed across tens of custodians, clearing houses and counterparties. Citi's research shows systemically important institutions manage roughly $74 billion in collateral daily across about 65 custody locations. Fragmented settlement windows, regional market hours and operational cutoffs can force firms to hold extra buffers or post non-yielding collateral to meet margin calls outside normal operating hours.

Citi quantifies the impact: about 25% of collateral can remain unremunerated or effectively idle, creating a potential $15 billion idle balance at an individual large institution. That inefficiency can translate into about $346 million of forgone annual income for a Tier 1 bank, according to the report. Earlier work from Nasdaq and The ValueExchange produced similar estimates, reinforcing the magnitude of the problem.

Operational Frictions Behind Idle Assets

• Settlement cutoffs and local market schedules that misalign with global trading activity.
• Custodian operational hours and processing delays.
• Manual reconciliation, siloed ledgers and legacy messaging standards that slow transfers.
• Risk controls and legal constraints that force over-collateralization or prefunding.

Tokenization aims to mitigate these frictions by representing eligible assets in transferable digital form, enabling near-instant movement without waiting for conventional settlement windows to reopen.

Which Assets Are Being Tokenized?

Citi identifies tokenized cash, money market funds and government securities as leading candidates for institutional collateral. Each offers distinct benefits when turned into digital collateral:

Tokenized Cash and Money Market Funds

Cash traditionally sits as non-yielding margin. Citi reports roughly 60% of global margin stays in cash without producing returns. Tokenized money market funds and tokenized cash products can combine yield with instant transferability, allowing firms to keep assets earning returns until moments before mobilisation. JP Morgan's OnChain Liquidity-Token Money Market Fund filing illustrates how regulated fund wrappers can be implemented on-chain to let investors submit instructions linked to fund shares while preserving regulatory structure.

Tokenized Government Bonds and Treasuries

U.S. Treasury securities are central to institutional collateral markets. The Depository Trust & Clearing Corporation (DTCC) is preparing to launch its DTC Tokenization Service in October 2026. After moving into production activity in July, DTCC completed transactions that included U.S. Treasury repo, collateral pledges, securities lending and other workflows with more than 30 participants, such as BlackRock, Goldman Sachs, JPMorgan, Circle and Nasdaq. The DTC service will let eligible DTC-custodied securities be represented in tokenized form while retaining existing ownership rights and investor protections.

Tokenized Repo and Existing Production Momentum

Repurchase agreements (repo) are one of the more advanced institutional uses of tokenized collateral. Citi estimates that roughly 5% of monthly repo volume is already transacted in tokenized form. Industry production data underscore this shift: Broadridge reported that its Distributed Ledger Repo platform processed $8 trillion during July, with an average daily volume of $365 billion. These figures point to material institutional flows moving through distributed-ledger repo systems, demonstrating that tokenized collateral workflows can integrate with existing trading and back-office infrastructure.

Tokenized repo allows firms to settle funding transactions while moving digital collateral without replacing existing trading systems, lowering the friction associated with traditional settlement and enabling more timely collateral reuse and optimization.

24/7 Collateral Movement: A Structural Advantage

One of tokenization's most compelling benefits is support for around-the-clock collateral movement. Global derivatives and digital asset markets may operate outside of conventional banking hours, and tokenized representations let collateral transfer without relying on local custodian business hours or settlement cutoffs. That can reduce the need for prefunding and encourage more efficient collateral optimization.

DTCC is also developing a Collateral AppChain with Chainlink to automate eligibility checks, valuation updates, margin calculations and settlement across participants and networks. The platform aims to support collateral providers, receivers, custodians and other intermediaries with shared infrastructure for moving assets between markets and blockchain environments. DTCC expects the Collateral AppChain to enter production in the fourth quarter of 2026.

Practical Impacts of 24/7 Availability

• Lower prefunding requirements and reduced capital tied up as buffers.
• More dynamic margining and collateral optimization across time zones.
• Faster response to market stress and cross-border events.
• Opportunity to combine yield and liquidity by keeping assets invested until transfer is necessary.

Regulatory and Operational Progress: DTCC and Beyond

Regulatory progress has been instrumental. DTCC received a U.S. Securities and Exchange Commission no-action letter in December 2025 that cleared the way for tokenizing specified liquid securities, including U.S. Treasury bills, notes and bonds, Russell 1000 stocks and major index ETFs. The recent production tests and the scheduled October rollout show how market infrastructures and large custodians are operationalizing tokenization in a way that retains legal protections while enabling new settlement models.

More than 30 large financial and technology firms participated in DTCC's July production activity, executing tokenized U.S. Treasury repo and delivery-versus-payment trades. That coordinated testing is a critical milestone toward broad institutional adoption.

Challenges and Adoption Headwinds

Despite clear benefits and strong pilot momentum, Citi cautions that several obstacles remain before tokenized collateral becomes ubiquitous:

• Legal and regulatory frameworks need harmonization across jurisdictions to ensure enforceability and participant protections.
• Legacy systems and custody models require integration and often need modernization to support tokenized asset flows.
• Institutional risk controls and internal policy changes are necessary to permit operational reliance on digital representations.
• Standardization of token protocols, messaging standards and interoperability layers remains a work in progress.

Citi's report emphasizes that institutions are moving from observing tokenized collateral to actively applying it in live treasury, margin and settlement workflows, but full-scale adoption will depend on continued regulatory clarity, operational resilience and cross-industry standards.

Looking Ahead: What Market Participants Should Watch

• Uptake rates: Citi projects 77% adoption expectations by 2026, up from prior estimates, reflecting broader use cases beyond pilots.
• Infrastructure rollouts: DTCC's October DTC Tokenization Service and the Q4 2026 Collateral AppChain should be monitored for participant onboarding and real-world transaction volumes.
• Repo and liquidity products: Repo markets and tokenized money market funds will likely be early mainstream channels for digital collateral, with Broadridge data already showing significant throughput.
• Interoperability and standards: Progress on cross-chain settlement, eligibility checks and collateral optimization engines will determine how widely tokenized collateral can circulate across traditional and decentralized marketplaces.

Conclusion: Tokenization as a Practical Efficiency Play

Citi's analysis frames tokenized collateral not as a niche innovation but as a practical operational improvement with measurable economic impact. By enabling faster, more predictable transfers of cash, money market positions and government securities, tokenization can unlock collateral that today sits idle or unremunerated. That translates to reduced prefunding, lower balance sheet strain and potentially hundreds of millions in recovered income for large institutions. While legal, technical and governance barriers remain, the combination of production-ready platforms, regulatory signoffs and strong industry participation suggests tokenized collateral will be a core component of institutional treasury and margin operations in the coming years.

For crypto and TradFi participants, the transition represents both an opportunity and a responsibility: to adopt interoperable standards, build resilient operations, and align legal structures so that tokenized collateral can move reliably and securely across the financial ecosystem.