The next liquidity frontier: treasury in the age of digital assets

Digital assets are beginning to transform liquidity itself, not merely how well banks manage it. In this article, we explore how tokenisation, continuous settlement, and always-on markets are reshaping treasury’s operating model, and why governance will determine which institutions turn this shift into advantage.

The way banks think about liquidity resilience is changing. In this article series, we’ve been tracing this shift through the trade-offs between risk and growth.

Banks are moving away from treating structural buffers as the primary source of resilience, and towards building confidence through sharper modelling, a more nuanced understanding of deposit behaviour, and more integrated liquidity architecture. Together, these changes have made liquidity decisions more informed and deliberate, but always within the boundaries of the existing system.

Now, digital assets are beginning to change the system itself.

Digital assets transform how quickly liquidity can move, where it can be pledged or accepted, and how efficiently the transactions behind it can execute. For treasury, this alters the character of liquidity itself and, with it, the nature of the balance sheet.

Liquidity, redefined by speed

Liquidity has always extended beyond cash. In practice, treasury manages a blend of cash, securities, and contingent sources, each with its own timelines, constraints, and operational dependencies. Their value as liquidity hinges on where they sit, how quickly they can be mobilised, and whether they can meet obligations when required.

What changes in a digital environment is the speed and certainty with which those assets can move. Tokenised deposits, digitally enabled cash, and more transferable securities compress the gap between holding an asset and being able to deploy it. As a result, liquidity becomes more closely linked to mobilisation capability than to static holdings.

This has a direct effect on structural efficiency. A significant portion of liquidity is held to manage timing: prefunding payment systems, bridging settlement cycles, and maintaining excess balances against operational uncertainty. Faster settlement and more mobile collateral can reduce those frictions at their source.

Where legal, regulatory, and operational frameworks permit, prefunding requirements may fall as payment and settlement cycles compress. Collateral can be moved or substituted more readily across products and entities, securities portfolios can become more active sources of liquidity, and intraday funding can become more viable. Although digital infrastructure may reduce the friction of movement, it does not remove jurisdictional constraints. As treatment continues to evolve, it may raise new questions around eligibility, enforceability, and where liquidity can genuinely be deployed.

The UK’s 2022 liability-driven investment (LDI) crisis illustrates just how significant these developments could be. As collateral calls accelerated, investors needed to generate cash in already stressed markets. Had suitable money market fund holdings been eligible and accepted as collateral by counterparties, part of that conversion step could have been avoided. Tokenisation would not have eliminated the underlying exposure or the collateral call, but it could have eased the operational friction and potentially lessened the need to liquidate assets solely to obtain cash.

That possibility is beginning to move into practice. In 2025, Lloyds Banking Group, Aberdeen Investments and Archax used tokenised money market fund units and tokenised UK gilts as collateral for foreign exchange transactions. This set an important precedent, with regulated institutions showing that a broader range of assets could be transferred and accepted as collateral without first being converted into cash.

The commercial implication is a balance sheet less encumbered by process, and more defined by risk. Liquidity becomes more productive because less of it is needed to bridge settlement, collateral, and operational friction.

This can reduce some liquidity currently held to absorb settlement timing, prefunding and collateral-mobilisation friction. It does not, however, remove liquidity held against the underlying exposure, nor does it automatically determine the size of reported regulatory or management buffers.

Prudential treatment, risk appetite, market confidence, and the reliability of the new infrastructure will continue to shape how much liquidity firms retain. The opportunity lies in separating liquidity held against genuine risk from liquidity held because assets cannot yet be mobilised with enough speed and certainty. As that distinction becomes clearer, treasury can move towards a more just-in-time model without compromising the capacity required under stress.

Treasury becomes continuous

As liquidity becomes more mobile and deployable, treasury’s operating model and toolkit must also evolve. Existing funding agreements and transfer mechanisms are unlikely to disappear overnight, but they will increasingly need to work alongside digital assets, with the value of each use case shaped by its legal, tax, and capital treatment.

Most of today’s treasury functions still operate largely on a periodic basis. Reporting cycles, decision forums, and governance cadence create natural intervals at which liquidity is assessed and repositioned. This model already strains wherever behaviour moves faster than those cycles allow.

The move towards T+1 settlement, longer trading windows, and more automated post-trade processes is already compressing the time available to fund, settle, and control activity. Digital assets take that progression further still, enabling continuous settlement and more programmable movement of liquidity. LSEG’s Digital Settlement House, for example, is designed to support 24/7 movement of commercial-bank money, instantaneous settlement, and dynamic intraday liquidity management across connected networks.

The transition will not be uniform. For some time, treasury will need to manage a two-speed environment: on-chain transactions and digital assets may move continuously, while the cash, securities and operational processes supporting them remain dependent on legacy infrastructure, cut-off times and conventional banking hours. This creates a new form of timing risk. A position may change on-chain when the asset required to fund, hedge or redeem it cannot be mobilised until the relevant off-chain market or payment rail reopens. Treasury will therefore need visibility across both environments, clear rules for managing out-of-hours exposures, and sufficient liquidity to bridge the points at which continuous and periodic systems do not align.

In addition to supporting faster processing, more flexible settlement means that positions can evolve continuously, while collateral and funding decisions become intraday by necessity rather than exception. Treasury, in other words, must operate continuously, not simply process transactions faster:

• Liquidity is managed as a continuous flow rather than a sequence of snapshots
• Funding and collateral decisions become event-driven as positions and market conditions change
• End-of-day optimisation becomes one point in a continuous process rather than the principal decision window.

While this shift makes the liquidity position more clearly visible to treasury, it introduces a fresh challenge: how to convert that clarity into faster decisions.

When liquidity operates continuously, execution can no longer rely solely on periodic, human-led decision-making. Intelligence needs to sit within treasury operations, identifying exceptions, updating assumptions, and supporting executable decisions as conditions change. Its purpose is to close the gap between insight and action, rather than create a separate layer of forecasting.

The treasury profession is already adapting. A new Association for Financial Professionals (AFP) and Kyriba certificate covering stablecoins, on-chain liquidity, and operational readiness shows where the profession is heading. Treasury teams will increasingly need to understand how digital instruments interact with conventional cash, collateral, and established decision rights.

Governance as the differentiator

More than any other component in the liquidity framework, governance now faces the greatest pressure to change.

Existing models assume periodic intervention, with approvals, reconciliations and controls applied after the fact. That approach only works if the underlying system moves slowly enough to allow it.

The failure of Silicon Valley Bank in 2023 also demonstrated how quickly stress can cross between conventional banking and digital-asset markets. When Circle disclosed that part of the reserves backing USDC was held at SVB, the stablecoin lost its dollar peg as markets remained active over the weekend while access to parts of the traditional banking system was constrained. This event highlights that on-chain liquidity does not sit apart from the banking system: it can inherit dependencies on reserve banks, redemption arrangements and conventional settlement windows.

TerraUSD provides a more extreme, but related, illustration. An algorithmic stablecoin is a very different thing from a regulated tokenised deposit, but the underlying lesson still stands: if assets can move around the clock, monitoring, escalation, and decision rights cannot stop at Friday close.

In an environment like this, governance must move with the system it oversees. Firms need to know who monitors positions outside conventional hours, which events should trigger escalation, what actions can happen automatically within pre-agreed limits, and where human judgement remains essential.

This shifts the focus towards control by design:

• Constraints built into processes, rather than applied after an event
• Guardrails that define acceptable actions in real time
• Preventative controls that catch potential breaches before they happen
• Continuous monitoring, instead of periodic checks.

These capabilities are becoming increasingly necessary as liquidity flows grow faster and more complex.

At the same time, governance itself has to go further. Liquidity now rests on a much broader ecosystem of settlement networks, custodians, counterparties, and the infrastructure connecting them. As these relationships deepen, a single operational failure, control weakness, or loss of confidence anywhere in the network can spread quickly, disrupting asset availability or creating liquidity pressure elsewhere.

Governance, then, cannot stop at a firm’s own control framework anymore. Treasury and risk need to understand where critical dependencies sit, how disruption might move across the network, and what alternative routes are available under stress. Firms are, in effect, managing two things at once: their own balance sheet and their exposure to the resilience of the wider ecosystem.

Strong governance is what makes innovation possible, providing the confidence institutions need to operate in a more fluid and interconnected environment. Without it, faster mobilisation can all too easily mean faster transmission of risk.

Liquidity’s economics evolve

Across this series, a common theme runs through every article: confidence. It’s at the heart of how banks understand liquidity more precisely, act on it more effectively, and integrate it more fully across the enterprise. Digital assets push that progression to the extreme by changing how liquidity itself behaves.

Liquidity starts to be defined less by what’s held and more by how reliably value can be mobilised across cash, collateral, and securities. Timing frictions ease, the boundaries between assets soften, and the balance sheet becomes a more active driver of resilience and growth.

For treasury, competitive advantage will not come from joining every consortium, sandbox, or digital asset initiative, nor from adopting individual technologies without a clear balance-sheet rationale. It will come from a coherent digital liquidity strategy, which identifies where greater asset mobility genuinely changes the economics of liquidity, where continuous operation requires a different treasury model, and where new dependencies demand stronger governance.

Treasury therefore needs to be involved before those decisions are made, rather than asked to support them after the fact. Its role is to identify where greater asset mobility genuinely improves the economics of liquidity, where continuous operation requires a different operating model, and where new dependencies demand stronger governance.

Closing thought

The organisations that thrive in this next era won’t be the ones that adopt digital assets fastest, but those that understand most clearly what digital assets change: the economics of liquidity, the operating rhythm of treasury, and the boundaries of governance.

Firms that bring together the business, Treasury, Risk, and Finance around this understanding will be able to use their balance sheets more deliberately and with greater confidence. Those that do not may find that, even as the infrastructure around them evolves, they remain constrained by assumptions and operating models built for a system that no longer exists.