DLT (Distributed Ledger Technology) is a type of database in which several independent participants each hold a copy of the same record and agree on every update through a consensus protocol, so no single administrator controls the data. Each entry carries a cryptographic signature showing who authorised it, and hash links make tampering with older records detectable. Blockchain is the most widely used form, but other designs record transactions as a graph or show them only to the parties and a notary. The practical split is between permissionless networks, where anyone can validate, and permissioned ledgers run by an operator. The EU DLT Pilot Regime lets firms trade and settle tokenised securities within set size caps.
How does distributed ledger technology work
Each participant, or node, keeps a full or partial copy of the ledger. When someone submits a transaction, it is broadcast to the network, checked against the rules (for example, that the sender owns the asset and has not already spent it), and then added to every copy once the nodes reach consensus. Cryptographic signatures prove who authorised each entry, and hashes link entries so that altering an old record would change every later one and be detected.
Consensus methods differ. Public networks use mechanisms such as proof of stake, where validators lock up tokens they lose if they approve invalid transactions. Private ledgers among known institutions often use voting-based protocols that finalise transactions in seconds because the validators are identified and contractually bound.
DLT vs blockchain
Blockchain is one data structure for a distributed ledger: transactions are batched into blocks, and each block references the hash of the previous one. Other designs record transactions as a directed graph or let only the parties to a transaction and a notary see it. The legal and regulatory term "DLT" is deliberately wider, so that rules apply whatever the data structure.
The more practical split is permissioned vs permissionless. On a permissionless network anyone can run a node and validate. On a permissioned ledger an operator decides who joins, which lets a regulated firm know every participant but reintroduces a central point of governance.
How the EU regulates DLT in securities markets
The EU DLT Pilot Regime, Regulation (EU) 2022/858, has applied since 23 March 2023. It lets firms run three types of infrastructure for tokenised securities: a DLT multilateral trading facility, a DLT settlement system, and a DLT trading and settlement system that combines both. Eligible instruments are capped: shares of issuers with market capitalisation below €500 million, bonds with issue size below €1 billion, and UCITS units with assets below €500 million. The total market value of DLT instruments on one infrastructure must not exceed €6 billion when admitted, and if it reaches €9 billion the operator must start moving instruments back to traditional infrastructure. Permissions and exemptions last for a maximum of six years.
What DLT changes in settlement: a worked example
In an illustrative bond trade of €10 million settling on T+2, both sides carry two days of counterparty exposure and tie up collateral to cover it. If the bond and a tokenised cash leg sit on the same ledger, a smart contract can swap them atomically, so either both legs move or neither does, and that exposure falls to zero.
For a buyer of a crypto or tokenisation business, the DLT design determines which licence the target needs, who is liable for node operation, and whether client records sit on infrastructure the target controls. A DLT licence granted for one ledger set-up may not cover a migration to another without regulatory notice.