India Tests Tokenized Bonds With Digital Rupee Settlement
India’s securities regulator has launched a pilot for tokenized corporate bonds that brings distributed-ledger technology and central-bank digital money into the existing capital-market framework.
Summary:
- SEBI’s Demat 2.0 pilot puts corporate bonds directly on a permissioned DLT ledger.
- Tokenization changes the market infrastructure without creating a new asset class.
- CBDC settlement links securities and payment into a single atomic transaction.
- Retail access and secondary trading are planned for a later stage of the pilot.
Announced by the Securities and Exchange Board of India on September 10, Demat 2.0 will test issuance, ownership, trading, settlement and bond servicing on a private DLT network, while preserving the securities’ existing legal status and market infrastructure.
SEBI is tokenizing the bond, not creating a crypto asset
The distinction is central to how SEBI has designed the project.
Under Demat 2.0, the digital token is not a representation of a corporate bond held somewhere else. The bond itself is issued as the token on infrastructure operated by regulated market institutions. It keeps the same ISIN, coupon, maturity, covenants, credit rating, security arrangements and investor rights that would apply to a conventional dematerialized bond.
That structure avoids one of the recurring legal questions around tokenized real-world assets: whether investors own the underlying security or merely hold a separate digital claim against an intermediary.
SEBI explicitly keeps the instrument within the Securities Contracts (Regulation) Act, 1956 and its existing securities rules.
Tokenization changes how ownership is recorded and transferred, rather than changing the economic or legal nature of the asset.
The bond’s contractual terms can also be embedded in a smart contract. Coupon rates, payment dates, day-count conventions and redemption terms can therefore become part of the programmable asset rather than information maintained only across separate back-office systems.
| Feature | Conventional Demat Bond | Demat 2.0 Bond |
|---|---|---|
| Ownership record | Traditional depository database | Private permissioned DLT |
| Legal status | Corporate security | Unchanged corporate security |
| Settlement funds | Existing banking and settlement rails | CBDC wallet linked to DLT settlement |
| Asset servicing | Existing operational processes | Smart-contract-based automation |
| Investor interface | Existing demat account | Existing account extended to Demat 2.0 |
Why the digital rupee matters more than the token itself
The potentially more consequential part of the architecture sits on the cash side of the transaction.
Participants will use a CBDC wallet opened through their bank under the Reserve Bank of India’s e₹ pilot. The securities leg and digital-rupee payment leg are then connected through the DLT infrastructure using atomic Delivery-versus-Payment.
In practical terms, transfer of the bond and payment are treated as one linked transaction. Either both settle successfully or neither does.
Traditional securities markets already use Delivery-versus-Payment mechanisms to control principal risk, but trade execution and final settlement can remain separated by processes involving clearing institutions, banks, depositories and reconciliations. Demat 2.0 tests whether programmable securities and central-bank money can bring those legs together more tightly.
SEBI says the structure removes the interval between the two transfers and therefore the counterparty exposure arising during that interval.
The RBI has been exploring related benefits through its wholesale digital-rupee program. Its existing e₹-W use cases include settlement of secondary-market government securities transactions and interbank call-money activity. The central bank has said
CBDC settlement can reduce settlement risk and may lower the need for guarantees or collateral used specifically to protect against settlement failure.
Demat 2.0 extends that logic toward corporate securities, where an asset can be programmable at the same time as the settlement money.
Existing exchanges remain part of the market
SEBI has deliberately avoided building a parallel token exchange.
Primary issuance will continue through stock exchanges’ Electronic Bidding Platforms. Existing bidding, cancellation, modification and allotment processes remain in place, while the depository credits tokenized securities to the investor’s Demat 2.0 holdings after allotment.
For secondary transactions, SEBI plans to connect existing request-for-quote and over-the-counter reporting platforms to the DLT layer rather than move trading into a new crypto-style marketplace.
That decision has regulatory consequences. Price discovery, order handling, reporting and market oversight can remain attached to systems that institutions already use, while DLT changes the post-trade architecture underneath them.
The same principle applies to custody.
Investors will not hold their own cryptographic keys. Depositories will manage the keys, and tokenized positions will remain visible through the familiar depository interface and holding statement. Existing KYC can also be reused rather than repeated for a separate blockchain account.
This is much closer to an infrastructure upgrade than to self-custodied finance.
How smart contracts could change bond servicing
Settlement is only one part of the operational experiment.
Corporate bonds generate recurring events throughout their life, including interest payments, record-date processing and final redemption. These events require accurate ownership records and coordination among issuers, depositories, banks, trustees and other service providers.
Demat 2.0 allows scheduled bond terms to be encoded into smart contracts. SEBI says coupon payments, redemption and other corporate actions can then be executed based on the holdings recorded on the ledger at the relevant record date.
READ MORE: Agentic Crypto Payments Surge 522% as Compliance Faces AI Test
The practical benefit would come from reducing duplicated instructions and reconciliation rather than simply making payments faster.
Automation, however, does not remove the underlying credit risk. A tokenized bond has the same issuer exposure as the conventional security, and SEBI does not require a separate credit rating merely because DLT is used. Existing rules on ratings, disclosures, listing, debenture trustees, valuation and investor protection remain applicable.
Permissioned DLT keeps regulated institutions in control
The network itself will not operate like a public blockchain.
SEBI says the distributed ledger is private and permissioned, with market infrastructure institutions developing and operating it and NPCI providing technology and implementation support. Depositories and stock exchanges will initially operate network nodes.
That design gives the regulator and market operators control over participation, confidentiality and legal enforcement.
A court attachment, regulatory freeze or restriction applying to a demat account or particular ISIN will also apply to the corresponding tokenized holding. The depository remains the authoritative record keeper under the Depositories Act even though the underlying record is maintained on DLT during the pilot.
This differs from public-chain tokenization models where legal ownership, blockchain possession and off-chain registries can sit in different places.
What Changes Next
SEBI has divided the broader rollout into three stages, allowing the regulator to test settlement and servicing before widening the system.
| Stage | Main Change | Market Impact |
|---|---|---|
| Stage I | Tokenized issuance through EBP and on-ledger asset servicing | Initial participation expected from institutions |
| Stage II | Secondary trading becomes available | Access expands to retail investors |
| Stage III | Potentially more nodes, instruments and corporate actions | DLT could extend deeper into regulated market infrastructure |
Before secondary trading is enabled, SEBI also envisages an interim peer-to-peer or demat-to-demat transfer route. The payment could take place outside the atomic architecture using CBDC or conventional banking channels, giving early participants an exit mechanism rather than forcing them to hold the bonds until maturity.
Stage III is where the project could begin affecting a wider part of India’s securities infrastructure. SEBI is considering extending node participation to credit rating agencies, depository participants and other regulated entities, while potentially adding further financial instruments and corporate actions.
The pilot remains inside SEBI’s Regulatory Sandbox, so any exemptions are limited to the defined test rather than representing a permanent change in securities law. The next material question is therefore not whether India has accepted tokenized securities in principle, but whether the pilot can demonstrate reliable settlement finality, cybersecurity, scalability and operational savings before SEBI considers a broader framework.
The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.
Alexander Stefanov
Reporter at CoinsPress
Alex is Editor-in-Chief of Coinspress and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets - crypto first, then everything else. It started in 2016 with Bitcoin. Like most people at the time, he didn't fully understand it - so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can't properly understand one without the other. What drives him is straightforward: he wants to know why something is happening, not just that it's happening. Most market coverage stops at the headline - price up, price down, here's a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn? He holds a degree in Tourism from New Bulgarian University - not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That's probably why he hasn't stopped.
