The Tokenisation of Assets and Potential Implications for Financial Markets

Read the OECD's full report on tokenisation here.

Foreword by Greg Medcraft, Director for Financial & Enterprise Affairs, OECD

Distributed ledger technologies (DLTs) are poised to become a transformative feature of financial markets, both in financial products and in the underlying market infrastructure itself.

The tokenisation of assets, involving the digital representation of real assets on distributed ledgers or the issuance of traditional asset classes in tokenised form, is a core part of this technology’s revolutionary potential. Though the technology and practice of tokenisation are nascent, its theoretical benefits include: efficiency gains driven by automation and disintermediation; transparency; improved liquidity potential and tradability of assets with near-absent liquidity; and faster and potentially more efficient clearing and settlement. It suggests a reconsideration of core financial market activities, from trading, pricing and liquidity of securities, to processes such as clearing and settlement, and activities such as repo and securities lending.

This report analyses the impact that wide-spread adoption of tokenisation could have, discusses emerging opportunities and risks of the application of DLTs for financial markets and their participants, illustrated with case studies in OECD and non-OECD economies. It investigates the role of trusted third-party authorities in decentralised networks as guarantors of the connection between the on- and off-chain worlds, and explores the need for a tokenised form of central bank digital currency or stablecoin for the payment leg of security settlements on DLT-based trading venues. 

Policymakers have a role in ensuring that tokenised markets are consistent with regulatory aims of promoting financial stability, protecting financial consumers, and ensuring market integrity. Existing regulation may need to apply to new actors and new products, and new requirements may need to be designed to address emerging risks stemming from the novel nature of some of the business models and processes involved in tokenisation.

Potential gaps in existing regulatory frameworks need to be identified and addressed, and regulatory and legal ambiguity around asset tokenisation addressed, as a stepping stone to the safe development and use of tokenisation by market participants. Cross-border transactions of tokenised assets require international cooperation to limit regulatory arbitrage and to foster the safe development of tokenised markets – a goal the OECD will continue to pursue through its financial policy communities, and its wider work supporting an international policy environment to provide good governance for decentralised technologies and their markets.