Post-modern financial services: re-imagining DeFi and digital gilts

Written by Christopher Hinitt, Digital Banking and Operations Lead at PA Consulting

In her 2024 Mansion House speech, Chancellor Rachel Reeves pledged that the UK would trial a digital gilt within two years. This will likely represent the largest bond issue using a Distributed Ledger Technology (DLT) and Decentralised Finance (DeFi) platform to-date - and the first significant initiative of its type backed by a G7 Government and its Central Bank. A well-structured approach to a digital gilt could usher in: (1) improved capital management and returns, (2) elevated citizen participation in wealth, and (3) AI-led dynamic capital allocation with significantly higher returns, by using fractionalised Real-World Assets (RWAs). In other words, physical assets and Web3 assets, each with their own return, risk and financial ‘fingerprint’ embedded in DeFi protocols. However, in many ways, trialling is a misnomer. For a ‘trial’ digital gilt to be an effective financial instrument tradeable on bond markets, and to function in a way that does not adversely impact traditional gilts…