When SEBI launched Demat 2.0, India's first pilot for tokenised corporate bonds, the obvious talking points were distributed ledger technology, digital assets and the use of the wholesale central bank digital currency.

But the more consequential story is less about blockchain and more about market infrastructure.

By combining tokenised securities with the RBI's wholesale Central Bank Digital Currency (CBDC), the pilot seeks to create a more integrated framework where securities and money can move together, reducing settlement frictions and operational complexity.

The move is timely and no longer theoretical. REC was the first issuer, raising ₹5 billion from 18 investors on September 7. L&T followed with another ₹5 billion, while IIFL raised ₹250 million. Together, the three issuers have raised ₹10.25 billion through the pilot.

The significance of those transactions, however, lies less in the amount raised than in what they are testing.

As India pursues its Viksit Bharat aspirations, a deeper and more efficient corporate bond market will be essential to complement the banking system in financing the country's growing investment needs.

Efficient infrastructure is a necessary building block for that evolution.

Global experience provides encouraging signals.

According to the Bank for International Settlements (BIS), more than 60 tokenised bond issuances globally had been completed as of July 2025. BIS analysis of 39 tokenised bonds found average bid-ask spreads of around 19 basis points compared with approximately 30 basis points for comparable conventional bonds, while issuance costs remained broadly similar.

Importantly, the gains appear to stem from lower settlement frictions, reduced reconciliation effort and lower operational complexity rather than simply removing intermediaries.

But can it improve liquidity?

That is a different question.

The Liquidity Test
A common assumption is that making bonds easier to transfer automatically makes them easier to trade. The reality is more nuanced.

Tokenisation improves transferability, while liquidity determines whether transactions occur in the first place.

India's corporate bond market does not suffer from a shortage of settlement infrastructure. Its liquidity challenge is primarily structural. Issuance remains concentrated among highly rated borrowers. Participation is dominated by a relatively narrow set of institutional investors. Secondary-market activity remains limited, with many investors preferring to hold bonds until maturity.

These are economic challenges rather than technological ones. Put simply, liquidity is not created by technology. It is created when capital, confidence and attractive risk-return opportunities come together in a market.

First, liquidity needs capital. Every seller ultimately needs a buyer. Markets become liquid when a broad and diverse pool of investors is willing to deploy capital across issuers, ratings and market conditions. Faster settlement cannot compensate for the absence of risk-taking capital.

Second, liquidity needs confidence. Investors transact when they have confidence in valuation. Regular trading activity, transparent pricing and diverse participation create that confidence. Without robust price discovery, liquidity remains shallow regardless of how sophisticated the infrastructure becomes.

Third, liquidity needs attractive economics. Investors provide liquidity when returns adequately compensate them for the risks they assume. Attractive risk-return opportunities draw capital into the market and sustain trading activity. Technology may facilitate transactions, but it cannot create investor demand.

In essence, tokenisation can improve the movement of securities. Liquidity ultimately depends on the movement of capital.

None of this diminishes the importance of SEBI's initiative. Efficient infrastructure is a prerequisite for efficient markets. Faster settlement, lower operational frictions, better interoperability between securities and money, and greater automation can all improve market functioning.

However, infrastructure should be viewed as an enabler rather than an endpoint.

As India seeks to deepen its corporate bond market, tokenisation represents an important first step. The next phase will require measures that broaden retail participation, attract a wider pool of institutional investors, encourage activity across the rating spectrum, strengthen market-making and improve secondary-market depth.

SEBI's pilot may help build the next generation of market infrastructure.

The next challenge is ensuring that more participants use it.