Co-authored by the SRI and Superteam Ireland on behalf of the Solana Foundation.

Introduction

This document contains the response of the Solana Foundation to the Central Bank of Ireland's (CBI or the Central Bank) Discussion Paper on DLT and Tokenisation in Financial Services.

We appreciate the efforts of the CBI in producing a broad, thoughtful document, and in setting out their underlying thinking before embarking on detailed rule-making. We support much of this thinking but, inevitably, there are certain points on which we have a different perspective and it is healthy to be able to put these points on the table.

Because the document is wide-ranging, we have followed the same structure in our response. For some chapters, we make general comments about the CBI's stance as expressed in the chapter. In other cases we confine our response to the specific questions posed by the Central Bank.  As the Solana Foundation, we have focussed our remarks principally on permissionless DLT, although we acknowledge that that private chains have their uses.

Our Overall Conclusion

Our overall conclusion is that the transformative potential of DLT and tokenisation will be realised through open, permissionless networks that combine open access, composability, decentralised governance and comprehensive transparency — not through the application of DLT techniques within the existing, closed structure of the financial system. We believe that regulatory frameworks should be designed to allow these features to operate to the fullest extent possible, assessing DLT-based systems by reference to their economic substance and functional risk characteristics rather than their technical form. The Central Bank has an important role to play in shaping both the Irish and European regulatory response, and we hope this submission contributes usefully to that process.

Chapter 2: What is DLT and Tokenisation

The Central Bank characterises DLT as a "technological solution that achieves a single, shared 'source of truth' through a common ledger…to replace multiple independent ledgers with a synchronised digital record, in which transaction data are shared, validated, and replicated across a network of distributed nodes." It defines tokenisation as the issuance or representation of assets in digital form on a DLT network. It then distinguishes between private, permissioned and permissionless versions of DLT and introduces blockchain as a specific type of DLT. Finally, it mentions smart contracts as automation tools associated with DLT networks.

While these characterisations are technically correct, we believe that collectively they are too broad to be analytically useful, and risk obscuring what is genuinely novel about DLT.

DLT is not unique in achieving a shared source of truth: traditional financial infrastructure systems also do this. It is true that, in traditional systems, there is not a single record shared by all participants, but this is because each participant only needs to ensure that it has the same record as the central provider: transactions to which it is not a counterparty are irrelevant to it. Arguably, this is a more efficient structure than a DLT-based system, since transaction messages are sent point-to-point rather than broadcast across a network, and reconciliations require only bilateral, not multilateral, consensus.

It is also true that traditional finance is plagued by multiple, conflicting stores of data, giving rise to reconciliation costs and operational risk. However, this is due to the legacy internal systems architectures of financial institutions at least as much as it is to the wider financial infrastructure. We can expect that technology improvements deployed within banks and by incumbent infrastructure providers will deliver incremental improvements in the efficiency of data management. Some of these improvements may utilise cryptography or other techniques associated with DLT, and indeed the technology boundary between "DLT" and other systems is already fluid. For example, Byzantine Fault Tolerance techniques used in DLT protocols have also been deployed in traditional distributed systems predating DLT. The foundational PBFT algorithm (Castro and Liskov, MIT, 1999) was developed for and demonstrated in conventional distributed file services nearly a decade before Bitcoin; and BFT-SMaRt, described by Cachin and Vukolić (IBM Research, 2017) as "the most advanced and most widely tested implementation of a BFT consensus protocol available," was developed as a general-purpose replication library from around 2010, again predating the mainstream emergence of permissioned blockchains. The techniques themselves are therefore not the distinguishing feature of DLT; what matters is the context and structure in which they are deployed.

If technology improvements occur within the existing, closed and exclusive structure of the financial system, they remain primarily a matter of operational efficiency for incumbents and do not call for specific regulatory engagement beyond that already provided by existing operational risk management frameworks. What makes DLT a special case is that it offers four features that have not previously been available in combination:

• Open access for both users and application developers;
• Composability: all functionality is open-source and available to be re-used by others building on the network;
• Decentralised, rules-based governance, in which protocol behaviour is determined by code rather than institutional discretion;
• Comprehensive transparency, which exposes the system's workings — including its weaknesses and vulnerabilities — to scrutiny by all who choose to examine it.

These features can exist within closed networks, but their transformative potential is realised when they are deployed on open, permissionless networks. They also give rise to risks and challenges that regulation must address. We believe, however, that the benefits on offer far outweigh those risks, and that the appropriate regulatory response is to create the conditions in which these features can operate to the fullest extent possible.

Chapter 3: The Benefits of Tokenisation

The Central Bank states that "DLT and tokenisation applications offer the potential to transform the underlying infrastructure of finance and make the provision of financial services more efficient, transparent, and accessible, as well as lead to the provision of new, innovative financial services."

We share this vision and believe it to be highly desirable. We would suggest, however, that the transformative impact described will be delivered not primarily through the incremental efficiency gains highlighted in the Discussion Paper, but by unleashing deeper structural economic forces.

This is not to dismiss efficiency gains: every reduction in cost or risk can ultimately benefit users of the financial system, and the benefits listed in the paper would certainly be welcome. However, achieving them within existing industry structures is likely to be difficult in practice.

Take the example of simultaneous trading and settlement cited in the document. It would be perfectly possible to deliver such a model using traditional technology: all that would be required is for each participant to maintain a fully collateralised credit line at a settlement institution whose rules treat execution on an exchange as full and final settlement, which is essentially how existing DLT settlement works. This would eliminate the delay between trading and settlement and remove post-trade credit and adverse selection risk. However, it would also force settlement to occur on a gross basis, significantly increasing liquidity costs. Settlement netting is arguably a greater benefit of existing infrastructures such as CLS than PvP settlement itself, at least in normal market conditions. Any transition to pre-funded gross settlement would therefore involve a complex cost-benefit debate that could take years to resolve, irrespective of the technology used to implement it.

The deeper benefit of DLT lies in allowing open access, composability, decentralised governance and transparency to work together. Some concrete illustrations:

• Open access makes robust, consistent transaction verification available on demand — and, in the case of networks such as Solana, at extremely low cost.
• Open access combined with composability radically reduces the cost of new product and service development. For example, a significant proportion of the functionality required to launch a financial institution operating exclusively with tokenised assets — including liability management, payments infrastructure, a substantial part of compliance functionality, trading operations and credit distribution interfaces — is already pre-deployed and freely available on Solana. There would of course be integration costs, and many non-technology requirements would remain, but the economics of new market entry have changed fundamentally. This is not a theoretical observation: Altitude.xyz, while not a bank, is constructing something that incorporates many bank-like features in a purely on-chain model.
• Decentralised, rules-based governance changes the approach to conduct of business. Services governed by smart contracts do precisely what their code specifies: there is no management discretion, significantly less scope for operational error, and complete transparency of execution.
• Comprehensive transparency enables a new approach to risk management, in which vulnerabilities can be identified and addressed publicly rather than concealed, errors can be identified and subsequently avoided, and structural weaknesses can be tackled by the market itself. Two examples illustrate the point. First, one of the factors enabling the Drift protocol incident was that its DAO structure (a Decentralised Autonomous Organisation, in which governance rights are distributed among token holders rather than concentrated in a board or management team) involved a small group of individuals with signing authority, making it vulnerable to social engineering. This insight has since informed an emerging best practice that DAO structures should use larger and more distributed delegate sets. Second, Maximum Extractable Value — a form of rent extraction enabled by a block producer's exclusive right to select and order transactions, analogous to certain market microstructure privileges in traditional markets — is being actively addressed on networks such as Solana, both through mechanisms that seek to channel it productively and through initiatives designed to reduce the structural opportunities to capture it. These initiatives are compressing market structure evolutions that took a generation in traditional markets into a few years.

Open access, composability, decentralised governance and comprehensive transparency will not eliminate risk from finance, and may give rise to new risks at both individual and systemic levels, ranging from vulnerabilities in protocol code to novel instabilities arising from the interaction between market participants and automated smart contract systems. Regulation will therefore continue to be necessary and will need to evolve. We believe, however, that it should do so in a manner that allows these features to operate to the fullest extent possible — creating the best possible conditions for a genuine transformation of the financial system, reducing its overall economic cost, broadening access to financial services, and thereby supporting wider economic activity. These outcomes are, we would suggest, entirely consistent with the Central Bank's own mandate.

Chapter 4: Realising the Benefits of Tokenisation

Legal and Regulatory Clarity

We agree that legal and regulatory clarity is essential for the development of DLT-based finance. We are supportive of efforts to ensure that digital tokens are recognised unambiguously as property and we agree that substance should prevail over form when evaluating financial products. One area that merits particular attention is where a token purports to represent a claim on property that has a separate existence in its own right. This scenario can give rise to fiduciary risks where, for example, the underlying property is held separately from the token.

We agree that applications should enforce clear rules on custody, settlement finality, disclosure, investor protection, and Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) and note that the functionality to support such rules is readily available within Programs deployed within the Solana protocol.

Interoperability and Standards

We agree that it is important to avoid silos at all levels of the product stack and that interoperability and standards are important tools to mitigate this.

Standards are particularly useful in areas such as data structures and definitions that allow consistent processing of data in different contexts. Successful examples include ISIN standards for security identifiers and the ISO standards that underpin much financial messaging. Efforts to create similar standards in crypto are already underway.

However, we would not be in favour of mandatory, top-down efforts to impose alignment between core protocol operations. For example, Solana and Ethereum have taken very different approaches to the question of scale and latency which have structural implications for the behaviour of each chain and attract strong adherents on both sides. There would be no justifiable case for a regulator choosing between these approaches.

We also note that layer 1 blockchain protocols are used by people all over the world, and we would strongly oppose the imposition of national or regional standards that fragmented these global networks.

Tokenisation of Assets and Money

We understand the importance and special status of central bank money as a settlement asset. However, we do not believe that it is a pre-requisite for the safe and efficient settlement of financial asset transactions per se. Central bank money is vital in situations where systemic risk is concentrated on account of the value of settlements or the nature of participants in the settlement process and the consequence of a loss of confidence in the settlement asset could be catastrophic. The hierarchical structure of traditional financial systems tends to create such risk concentrations, and lack of access to central bank money can itself become a barrier to entry to financial systems, reinforcing concentration risk.

Open financial systems are likely to see flatter, less concentrated network structures with many more, smaller, participants directly involved in asset transactions on their own account. In these circumstances, private money may not pose nearly the same systemic risk. We therefore submit that any mandates regarding use of a particular settlement asset should be based on the systemic risks arising from the transactions being settled, rather than the nature of the assets being traded.

Operational Resilience and Scalability

Solana is architected for scale, has very low and stable latency and is designed such that the effects of network congestion, where they occur, are localised to individual combinations of token and accounts. Moreover, after experiencing a number of outages in its first years of operation, it has operated without interruption since February 2024. Finally, despite being a permissionless system, it has a well-specified path to network recovery in the event of a future outage, with clearly defined roles and responsibilities. We therefore understand the importance of resilience.

We note that the Central Bank refers to DORA as part of the resilience framework applicable to DLT-based systems. DORA's third-party risk regime was designed with identifiable, contractually-bound ICT service providers in mind. A permissionless blockchain does not fit this model: there is no counterparty to contract with, no single provider to audit or exit, and no entity to designate under the Critical Third Party Provider framework. However, we would suggest that public blockchains satisfy the underlying policy intent of DORA's third-party risk framework in ways that private infrastructure often cannot. Protocol code is auditable by anyone without contractual gatekeeping — arguably superior to the audit rights DORA provides for. There is no single provider whose failure can take the network down. And there is no vendor lock-in of the kind that makes exit strategies necessary. The gap between DORA and permissionless blockchain infrastructure is not evidence that such infrastructure is riskier than private alternatives: it is evidence that the framework needs to evolve to incorporate decentralised systems on their own terms.

Digital Identity, Verification and Trust Infrastructure

We agree that a trusted identity infrastructure is a vital development and we are supportive of initiatives to allow both individuals and firms to manage their identities on chain (and online more generally). Many of the features required to support such an infrastructure, such as allow-lists and block-lists, are available natively in Solana.

Transparent and Accountable Governance

As we state in our comments on Resilience above, we believe that regulation should evolve to accommodate decentralised governance models, especially when they can demonstrate clearly how they meet the objectives underpinning rule-making. We believe protocols like Solana can do this today and indeed, on some measures, outperform traditional corporate structures.

The Central Bank highlights three areas of concern with permissionless systems:

1. Lack of a clear locus of accountability. This may be true in some cases. However, as with all systems, the actual details matter. In the case of Solana, the Solana Foundation has a clear mandate to protect and promote network integrity and, as part of this, maintains an Incident Response Group that works with validator nodes using well-defined recovery procedures in the event of network outage. While it is true that users of the network cannot contract with the Foundation and there is no SLA, it is also true that the validator nodes have a strong economic incentive to maintain network operations, since their revenue depends directly on producing and validating a continuous stream of blocks. Moreover, because the operation of the system is protocol-based and therefore completely non-discretionary, the scope for mismanagement is much lower than in traditional structures.
2. Reliance on "crowdsourced security". That is one way of looking at it. Another is that requiring a supermajority of hundreds or thousands of independent validators to reach consensus on data changes in the network presents a much more challenging attack surface for malicious actors than a single provider.
3. "Operational fragility" in areas such as finality, immutability or forks. Issues such as these are matters of protocol design, not a blanket concern. As we note above, Solana reaches finality, with all forks resolved and immutable data, in approximately 12 seconds currently. This will fall to around 150ms after a forthcoming upgrade.

In short, when faced with a well-specified permissionless protocol like Solana, Central Banks and public authorities can have complete confidence that governance arrangements meet standards of fair access, transparency, risk management and operational accountability, similar to those applied to existing financial market infrastructures.

Discussion Points

1. Beyond the enablers outlined in the discussion paper, what additional enablers are required to realise the potential of tokenisation in financial services?

We believe that many enablers will be developed by the market over time. However, one specific area where policy makers could help is the treatment of digital assets held on balance sheet.

For banks, the issue centres on the Basel Committee on Banking Supervision's prudential standard for cryptoasset exposures, under which Group 2b digital assets attract a 1250% risk weight. This charge is penal in its own right. However, it also has an important consequence concerning the ability of regulated financial institutions to participate in public blockchain networks as validators. Banks may have legitimate reasons to seek validator status on public networks: in addition to staking rewards, validators have access to information about pending transactions that may be relevant to their own or their clients' trading activities. However, if the staking asset required to operate as a validator — and the rewards earned from doing so — attract a 1250% risk weight, participation becomes economically unviable for any regulated institution regardless of the strategic rationale. This is a de facto exclusion of banks from validator participation on public networks, achieved through capital requirements rather than explicit prohibition, and ensures that the information advantages associated with validator status accrue exclusively to less regulated and less supervised market participants. We would suggest that this unintended consequence merits explicit consideration by the Central Bank in its engagement with the BCBS and European co-legislators on the permanent prudential framework for cryptoasset exposures.

For corporates, accounting standards do not currently recognise stablecoins as cash equivalents, which means they must be carried on the balance sheet as intangible assets, subject to impairment testing. This creates a material friction for treasury use: a corporate using stablecoins for routine payments or cross-border settlements cannot group them with liquid cash reserves in liquidity ratios, and transactions involving them may fall outside the statement of cash flows entirely, producing a misleading picture of the entity's liquidity position. The determining factor under both IFRS and US GAAP is whether redemption rights are legally enforceable and reserves fully verifiable — criteria that well-regulated stablecoins, particularly e-money tokens issued under MiCA, are capable of meeting. We would therefore encourage the Central Bank to engage with the IASB to accelerate a formal update to IAS 7 that recognises compliant, par-value redeemable payment stablecoins as cash equivalents.

2. Which elements of the current Irish or EU framework may constrain scalable tokenisation?

The main structural constraints we see at this time are:

• Restrictions on bank participation in permissionless networks under DORA;
• Over-emphasis on the use of central bank money as a settlement asset in situations where systemic risk does not justify it.

3. What legal clarifications are needed regarding ownership, settlement finality and smart contract enforceability, particularly cross-border?

DLT provides operational infrastructure that requires appropriate legal infrastructure to function as a complete settlement system — in the same way that a Securities Settlement System combines operational and legal components to achieve the certainty required by its participants.

In many cases, the relevant legal framework, including governing jurisdiction, can be specified in a tokenised asset's prospectus or issuance documentation. Specific terms — such as restrictions on eligible investors or requirements for identity verification of tokenholders — can be enforced directly by the token's smart contract, and the issuer may assume legal responsibility for the contract's operation. This approach provides a workable legal wrapper for many tokenised asset use cases. However, as we discuss in our remarks on Chapter 5 below, there may be a case for a more standardised approach.

It does not, however, translate straightforwardly to contracts running permissionless protocols, such as Automated Market Maker systems, where there is no identifiable issuer or legal counterparty. In most cases, this need not be an obstacle: if digital assets are recognised as property under law — a principle now established in several jurisdictions, including under the UK's Property (Digital Assets etc) Act 2025 — then the law should equally recognise legitimate transactions that transfer title in that property. On a permissionless blockchain, this must necessarily include transactions intermediated by smart contracts that have no legal personality. Difficulty arises principally in the event of an exploit. Where the conduct is clearly criminal — as appears to be the case with the Drift protocol incident — law enforcement engagement is both appropriate and available, as it would be for any cross-border financial crime. The harder case is where an attacker exploits an unintended vulnerability in protocol code and claims that the transaction was technically permitted by the rules of the system. This raises genuine questions about the boundary between legitimate arbitrage and misappropriation that would benefit from legislative or judicial clarification, and which we would encourage the Central Bank to consider in its engagement with the Law Reform Commission.

The question of settlement finality requires separate treatment. As noted elsewhere in this response, public blockchains such as Solana can deliver operational finality with a high degree of certainty and at speed. Legal finality is a distinct matter. In traditional finance, finality typically derives from contract law, encapsulated in the rules and user agreements of settlement systems. Such an approach could in principle be applied to a DLT-based settlement system, providing a contractual basis for finality that is legally enforceable between participants.

Certain jurisdictions go further, providing a statutory basis for finality that offers additional protection in the event of the insolvency of a participant during a settlement cycle — most notably through the EU's Settlement Finality Directive. Such statutory protection could, in principle, extend to DLT-based systems. However, the SFD currently applies only to systems meeting stringent designation requirements, including — in most implementations — settlement in central bank money. As we have argued elsewhere in this response, central bank money is not a necessary condition for safe settlement on public blockchain networks, where the open and decentralised network structure materially reduces the concentration of systemic risk present in traditional systems. Further, as we discuss in response to Chapter 5, the very notion of a "settlement scheme" may be challenged in a decentralised world. The effect of the current SFD scope is therefore to exclude DLT-based settlement arrangements from statutory finality protection, limiting the viability of otherwise valuable use cases such as collateral management and securities settlement. We would therefore recommend that the Central Bank engage with European co-legislators to extend the SFD framework to cover schemes settling in appropriately regulated private money, subject to risk management standards commensurate with the systemic importance of the scheme. Such an extension would not require the abandonment of the SFD's underlying risk management objectives — it would require their intelligent application to a new settlement architecture.

4. What governance arrangements are appropriate for tokenised markets, including permissionless networks?

As we noted previously in our response, we do not believe that distributed governance is inherently weaker than traditional, centralised governance and the transparency, resilience, automation and resistance to censorship of permissionless networks can, in some cases, lead to better governance outcomes than more centralised models. We therefore categorically reject any notion that regulated financial services businesses should be prevented from using permissionless networks in principle.

However, not all networks are equal and so businesses using them should do appropriate due diligence as they would for any service provider. Criteria should include validator concentration and vulnerability to sybil attacks; latency and time to reach finality; congestion management and fee spikes; uptime and recovery procedures; and product governance for core protocol upgrades.

From a regulatory perspective, we do not believe that regulators should encapsulate such criteria into a prescriptive checklist that regulated firms must complete before utilising a given protocol. This is because different criteria may carry different weight in different contexts. Rather, regulators should look for evidence of well-documented thought processes and appropriate backup and recovery plans, calibrated to the strategic significance of the business in question.

5. Are existing operational resilience standards sufficient for DLT-based infrastructures? Where might gaps arise?

Permissionless DLT networks are not inherently less resilient than centralised systems — the major layer 1 protocols all demonstrate continuous operation over several years, which is unsurprising given that they are collective enterprises comprising hundreds or thousands of nodes.

A challenge may arise in respect of evaluating the effectiveness of recovery procedures, which gets harder to do empirically the longer continuous operation is maintained.

Chapter 5: Tokenisation in Markets

The CBI's distinction between infrastructure and issuance is broadly logical. However, we would make three points.

Firstly, the framework assumes a meaningful separation between infrastructure and issuance that may not hold in practice. Smart contracts enable token issuers to implement sophisticated business rules governing a token across its entire lifecycle. On Solana, for example, a token contract may incorporate rules about eligible ownership, information requirements on transfer, and fee structures; it can also manage distributions, corporate events such as splits and consolidations, voting and governance rights, and the appointment of trusted parties to manage tokens in exceptional circumstances such as issuer insolvency. Since all of this functionality is freely available to any issuer on a public blockchain without recourse to a separate infrastructure provider, each token can in principle incorporate its own self-contained operational infrastructure. This challenges the assumption that infrastructure must be provided by a distinct, identifiable layer — and raises important questions about legal infrastructure that we address further in our response to Question 6.

Secondly, the low cost and functional flexibility of token issuance opens the prospect of what might be termed "financial composability": the disaggregation of securities and other financial instruments into their constituent components of cash flows, asset claims, participation rights and governance rights, allowing markets to price each of these accurately and enabling investors to construct portfolios that precisely match their economic objectives. The technology to build and manage such structures exists today on public blockchains. However, existing legal frameworks governing financial instruments are still organised around product silos — fund, bond, share, derivative — that reinforce legal form over economic substance. Realising the potential of financial composability will therefore require legal and regulatory frameworks to evolve toward substance-based rather than form-based classification, a development we would encourage the Central Bank to advocate for at European level.

Thirdly, the framework does not fully capture the implications of portfolio-level tokenisation, which we believe represents one of the most significant — and least appreciated — opportunities that public blockchain infrastructure makes available.

In traditional finance, portfolio-level regulation and investor protection are built around periodic disclosure, delegated verification and trust in intermediaries to accurately represent portfolio contents between disclosure dates. This architecture is a necessary response to the fundamental opacity of traditional portfolios, whose contents cannot be directly observed by counterparties, regulators or investors in real time.

On-chain portfolios, implemented through vault structures on public blockchains, have entirely different characteristics. A vault is a smart contract that accepts deposits, issues a receipt token representing a proportional claim on the underlying pool, and deploys assets according to a strategy that is encoded in the contract and visible to all. The entire portfolio is observable on-chain at all times by any party without intermediation; net asset value can be calculated and verified instantaneously; and the receipt token is itself composable — usable as collateral, traded, or deposited into further vaults — enabling portfolios of portfolios with fully transparent and continuously verifiable underlying exposures.

This enables a fundamentally different approach to regulatory oversight: one in which continuous real-time verification replaces periodic disclosure as the primary mechanism for investor protection and systemic risk monitoring. The CBI's three-tier framework does not naturally accommodate these possibilities, and we would suggest that portfolio-level tokenisation merits explicit consideration as a distinct analytical category in any framework intended to guide the development of tokenised finance in Ireland and the EU.

Discussion Points

6. What infrastructure developments are critical for scalable tokenisation of financial instruments?

As noted elsewhere in this response, financial infrastructure comprises both operational systems and legal frameworks. We believe that permissionless blockchains such as Solana provide an excellent operational foundation for the development of tokenised financial markets — openly accessible, continuously evolving, and available to innovative participants without permission or prohibitive cost. The critical gap is in the legal infrastructure required to support that operational development.

Two priorities stand out. First, the fragmentation implied by functionally rich token smart contracts — each potentially incorporating its own rules of ownership, liability and transfer — risks producing a confused and inconsistent legal landscape. To some extent this is inevitable: issuers will operate under different jurisdictions, and tokenisation will blur boundaries between public and private securities, the latter of which are routinely issued with bespoke terms. However, public authorities could materially assist by developing a settlement finality regime capable of encapsulating individual smart contracts as well as more centralised infrastructures, based on achievable standards and a proportionate registration process. Such a regime could be linked to compliance with disclosure requirements or jurisdictional registration, consistent with the treatment of equivalent off-chain assets.

Second, work should commence on reforming the legal framework governing financial assets to focus on underlying economic constituents — cash flows, claims on assets, participation rights and governance rights — rather than the legal form in which those constituents are bundled. This is a substantial endeavour, but one with the potential to be genuinely transformative: it would align legal infrastructure with the composability that tokenisation makes technically possible, and in doing so unlock a significant part of the value that tokenised finance promises to deliver.

7. How should regulation distinguish between tokenisation at instrument, portfolio and infrastructure levels?

We have addressed aspects of this question at various points in our response. The key points are as follows.

First, tokenisation materially blurs the boundaries between the three levels: as we have noted, functionally rich token contracts can provide infrastructure at the instrument level, challenging the assumption that infrastructure is necessarily a distinct and separable layer.

Second, financial composability will challenge the very definition of a financial instrument. Regulators should both accommodate and actively facilitate this challenge, recognising that substance-based rather than form-based classification is a necessary condition for realising the potential of tokenised finance.

Third, the automation and transparency characteristics of public blockchain networks fundamentally alter the risk profile of portfolios and the infrastructure supporting them — enabling continuous real-time verification in place of periodic disclosure, and rules-based execution in place of management discretion. We would encourage regulators to embrace and actively facilitate these changes, which promise substantial benefits for both consumers and the stability and efficiency of the financial system as a whole.

Chapter 6: Tokenisation in Funds

The Central Bank sets out a comprehensive overview of the challenges and opportunities in this area and examines certain specifics relating to fund operations and their realisation in tokenised models. We make four general points.

First, we reiterate our position that the automation and transparency available on public blockchain networks can support any specific business rules required for fund operations, including those governing liquidity management, subscription and redemption. We acknowledge that certain rules may need to be reconsidered in the context of the continuous, non-stop operation of DLT systems — for example, the assumption of defined dealing windows that underlies much existing fund regulation. However, we believe that the technology will support rather than constrain whatever conclusions that reconsideration produces.

Second, as noted above, the tokenisation of underlying assets will facilitate the creation of automated fund structures with complete, real-time transparency over asset composition, NAV and related data. These data will be continuously available to regulators as well as market participants and other stakeholders, materially enhancing the integrity and supervisability of the overall system.

Third, the Central Bank's observations on MMFs and ETFs provide useful support for our thesis with respect to financial composability. Smart contracts will make it significantly easier to implement hybrid fund structures incorporating features historically associated with particular vehicle types — for example, arbitrage mechanisms designed to support intraday alignment of token prices with underlying NAVs, a feature currently associated with ETFs. Such techniques could equally be incorporated into newer instrument types such as stablecoins — as we have noted elsewhere in this response, the economic and operational characteristics of stablecoins and e-money tokens are already closely aligned — further directing regulatory and market attention toward the substance of instruments rather than their legal classification.

Fourth, the re-use of tokenised instruments as collateral is inevitable and in general healthy. However, the growth of automated collateralised markets could give rise to new forms of systemic risk. In particular, there is a risk of correlation between collateral and underlying exposure: collateral takers may accept instruments that themselves hold assets ultimately exposed to the same risk the collateral is intended to mitigate — a dynamic analogous to the rehypothecation and wrong-way risk concerns that have featured in previous episodes of financial stress. On-chain transparency will ultimately mitigate this risk by making exposure chains visible in real time. However, two regulatory responses are warranted in the interim. Regulators should develop tools to monitor the build-up of systemic risk on-chain, including the ability to trace collateral chains across protocols. And particular attention should be paid to hybrid structures in which on-chain tokens serve as units in less transparent off-chain fund vehicles, where the transparency benefits of public blockchain infrastructure do not extend to the full exposure of the end investor.

Chapter 7: Tokenisation in Money and Payments

The integration of central bank money into DLT systems is a substantial topic and one on which we do not claim particular competence in this document. As we have noted elsewhere, we believe that open, distributed networks may obviate some of the systemic risk concentrations that central bank money currently mitigates, enabling a greater proportion of financial transactions to settle in private money. We recognise, however, that central bank money will continue to play a vital role in the financial system and we welcome the Eurosystem's engagement on this topic. The Solana Foundation intends to be an active participant in that process.

With respect to private money, Solana is open to tokenised deposits, tokenised e-money, stablecoins and hybrid monetary instruments, each of which may play a role in the emerging on-chain financial system. We offer some observations in response to Questions 12 and 13.

12. The Growth of Stablecoins Relative to Tokenised Deposits

The reason stablecoins have grown so much faster than tokenised deposits is that stablecoins are a disruptive innovation, whereas tokenised deposits are not.

The term "disruptive innovation" is frequently misused in business discourse. We use it in the precise sense originally coined by Clayton Christensen in "The Innovator's Dilemma." The key condition for disruptive innovation, in Christensen's conception, is the existence of a segment of customers that incumbent players are not serving. An innovator identifies this gap and finds a way to meet needs that are often simpler than those of the incumbents' existing customers and require a significantly lower price point. Having established a sustainable business model on this basis, the innovator invests in product improvement — as all companies do — until it begins to serve the lower end of the incumbents' customer base, but from an organisation built on a structurally lower cost base. Incumbents cannot respond effectively because their entire business model is predicated on higher prices and margins. The innovator therefore captures the market from the bottom up, ultimately leaving incumbents as niche providers serving the top end of the market.

This is a precise description of the development of stablecoins to date. The underserved customers came in two groups. The first comprised citizens of certain emerging markets who wanted to hold US dollars — whether to manage geopolitical or inflation risk associated with their domestic currencies, or simply to facilitate trade — but were cut off from the international banking system, which has increasingly withdrawn from emerging markets in response to higher capital requirements and more stringent KYC and anti-money laundering obligations. The second comprised participants in DeFi ecosystems who needed a low-risk on-chain settlement asset but were actively excluded by mainstream financial institutions.

In the absence of any alternative, both groups turned to stablecoins. In conventional terms, early stablecoins were undoubtedly a lower quality product than traditional commercial bank money: they offered opaque backing asset portfolios, unclear redemption and liquidity terms, and ambiguous legal frameworks. Yet they grew rapidly, because they were the only product available to these customer groups — precisely the dynamic Christensen describes.

Product improvement followed, in the form of increasing investment in asset security and transparency, accompanied by regulatory engagement that ultimately produced the GENIUS Act in the United States, allowing stablecoins to enter the financial mainstream. Yet stablecoins retain their structural cost advantages — particularly on networks such as Solana, where transaction costs are measured in fractions of a cent.

Tokenised deposits, by contrast, are directed at the existing customers of incumbent banks — customers who are, by definition, already reasonably well served by the current market. As mainstream financial markets migrate on-chain, tokenised deposits may grow in response. However, some existing bank customers will find that stablecoins meet their needs at lower cost, particularly as stablecoin issuers continue to invest in and support the innovative business models that on-chain finance makes possible.

A second dynamic will also shape the eventual outcome. There is currently no clearing infrastructure for either stablecoins or tokenised deposits — by which we mean a service that allows the recipient of a token to redeem it against the issuer and convert its value into another currency unit, such as a fiat bank deposit, without maintaining bilateral relationships with every token issuer. Such infrastructure would materially reduce the friction of participation in tokenised payment systems for both banks and merchants. Its absence may have the effect of reinforcing the dominance of major stablecoin issuers: if USDC is universally accepted, a consumer in Ireland may prefer it to a token issued by their domestic bank, however satisfied they are with that bank in other respects, simply because the domestic token is not widely accepted outside Ireland. We note that Ubyx has been established with the explicit aim of building such infrastructure, and we believe public authorities should be supportive of innovations of this kind.

As to the eventual balance between these forms of private money, we do not think it appropriate for the Solana Foundation to express a preference: our network is designed to support all of them. More fundamentally, we believe the outcome should be determined by market participants and their customers rather than by regulatory design. The role of public authorities, in our view, is to ensure that the legal and regulatory framework does not artificially advantage one form over another — and in particular that the treatment of stablecoins and tokenised deposits is determined by their economic and operational characteristics rather than by the identity of their issuers.

Chapter 8: Potential Risks

The Central Bank identifies many potential risks associated with DLT-based finance, and rightly so. DLT is a comparatively new technology that takes — and enables — radically different approaches to longstanding issues of data integrity, transaction management and asset control, deployed into a domain that is itself both highly complex and inherently risk-laden. We will not attempt a comprehensive exercise in risk identification in this response.

We will, however, address Question 16 by suggesting four principles that we believe should inform the regulatory approach to distributed finance, and which are consistent with the analysis we have offered throughout this document.

First, focus on substance over form. DLT and tokenisation tend to disaggregate, unbundle and distribute activities — we have identified examples at the level of both instruments and infrastructure. This tendency offers real benefits in terms of specialisation, customisation and risk distribution. Regulators should look for ways to support it, and resist the temptation to suppress it through the application of categorisation frameworks designed for a different era.

Second, recognise the value of transparency and harness it actively. DLT systems offer levels of real-time transparency that are entirely absent from traditional financial infrastructure. Regulators should make full use of this in pursuit of their public policy objectives — including supervisory monitoring, systemic risk assessment and investor protection. Doing so effectively may require the acquisition of new capabilities in data analysis and computer science, but the investment is likely to be repaid many times over.

Third, embrace automation as a governance tool. Protocol-based systems behave differently from systems governed by human discretion: they are more predictable, more consistent and more transparent in their operation. They are not invulnerable — code may contain bugs, and human actors remain susceptible to social engineering — but these risks call for a different regulatory response than that appropriate for a traditional organisation where management exercises discretion behind closed doors. Regulators should develop the frameworks and tools needed to engage with automated governance on its own terms.

Fourth, focus regulatory attention on genuinely systemic risk and extend appropriate trust to market-based solutions for the rest. Distributed systems have fundamentally different risk characteristics from centralised ones: broadly speaking, they trade frequency of failure for impact, distributing and absorbing shocks that would be catastrophic in a more concentrated architecture. Engaging with this reality may require a different regulatory mindset — one oriented toward identifying and addressing truly systemic issues, while allowing the combination of open access, composability, decentralised governance and transparency to address other risks through market mechanisms.

This is not a theoretical proposition. Blockchain infrastructure and DeFi ecosystems have evolved to the point where they operate with latencies comparable to traditional web infrastructure, have refined consensus models to function reliably in adversarial real-world environments, addressed deep market microstructure issues such as MEV, and built sophisticated financial markets operating entirely outside traditional systems. There have been crises, as there have been in mainstream finance, and these have been spurs to improvement in risk management. What is remarkable is that this entire development path has been market-driven and compressed into a fraction of the time it has taken traditional market infrastructure to reach comparable levels of maturity.

It is true that DLT-based finance has so far produced no systemic consequences of the kind that would engage the deepest concerns of financial regulators, and that this will change as the sector grows. But that is precisely the argument for focusing regulatory attention now on the conditions under which systemic risk could arise — while allowing the structural features of open, transparent, decentralised networks to continue doing what they have demonstrably shown they can do.

Conclusion

The Central Bank of Ireland's Discussion Paper represents a serious and thoughtful engagement with a technology that has the potential to transform the financial system, and we commend it as a basis for regulatory dialogue. We support its ambition and share its assessment that DLT and tokenisation offer the prospect of a more efficient, transparent and accessible financial system.

Our principal submission, however, is that this potential will not be realised through incremental improvements within the existing structure of the financial system, but through the deeper structural forces that permissionless, public blockchain networks make possible: open access, composability, decentralised governance and comprehensive transparency. These four features, working in combination, change the economics of financial market participation, the tools available for risk management, and the relationship between regulators and the systems they oversee. They are the lens through which we have sought to respond to each chapter of this paper.

Against that background, we make three overarching recommendations.

First, we urge the Central Bank to advocate for regulatory frameworks that assess DLT-based systems by reference to their economic substance and functional risk characteristics, rather than by reference to the legal or technical form in which familiar activities are conducted. This applies to the treatment of tokenised assets under capital and accounting standards, to the scope of the Settlement Finality Directive, and to the application of operational resilience frameworks such as DORA to decentralised infrastructure.

Second, we urge the Central Bank to engage actively with the legal infrastructure gaps that represent the most significant near-term constraint on the development of tokenised finance. Three priorities stand out. The first is the development of clearer legal frameworks governing smart contract-intermediated transactions — in particular, the boundary between legitimate arbitrage and misappropriation in the event of a protocol exploit, which current legal frameworks do not address adequately. The second is the development of finality regimes capable of accommodating decentralised settlement architectures — including, as we argue in our response to Question 3, an extension of the Settlement Finality Directive to cover schemes settling in appropriately regulated private money. The third, and most fundamental, is the reform of the legal framework governing financial assets to focus on underlying economic constituents — cash flows, asset claims, participation rights and governance rights — rather than the legal form in which those constituents are bundled. Without such reform, the financial composability that tokenisation makes technically possible will remain legally constrained, and much of the deepest value that tokenised finance offers will go unrealised.

Third, and most fundamentally, we urge the Central Bank to resist regulatory approaches that would confine DLT-based finance to the existing institutional structure of the financial system — whether by mandating central bank money as a settlement asset where systemic risk does not require it, by applying capital charges that prevent regulated institutions from participating in public networks, or by treating the absence of a contractual counterparty as inherently disqualifying. We would add that this principle cuts in both directions: just as regulators should not suppress permissionless networks, they should equally avoid mandating the use of private or permissioned chains, which would replicate the exclusivity and opacity of existing infrastructure in a new technical wrapper. We recognise that permissioned infrastructure has legitimate use cases, particularly in wholesale markets, and we do not advocate against it. Our submission is simply that the choice between open and closed infrastructure should be determined by the needs of the use case and the preferences of market participants, not by regulatory design.

The Solana Foundation welcomes the Central Bank's engagement on these questions and looks forward to contributing to the development of a regulatory framework that is fit for the financial system that tokenisation makes possible, rather than the one we are seeking to improve upon.