Tokenization: Overview and Financial Stability Implications

Carapella, Francesca; Chuan, Grace; Gerszten, Jacob; Swem, Nathan

doi:10.17016/FEDS.2023.060

Working Paper

Tokenization: Overview and Financial Stability Implications

Abstract: In this paper we outline tokenization, which is a new and rapidly growing financial innovation in crypto asset markets, and we discuss potential benefits and financial stability implications. Tokenization refers to the process of constructing digital representations (crypto tokens) for non-crypto assets (reference assets). As we discuss below, tokenizations create interconnections between the digital asset ecosystem and the traditional financial system. At sufficient scale, tokenized assets could transmit volatility from crypto asset markets to the markets for the crypto token's reference assets.

Keywords: Tokenization; Crypto-assets; Blockchain; Decentralized finance; DeFi; Financial stability and risk; Financial innovations; Interconnections;

JEL Classification: D49; D53; G00; G10; G20; G23;

https://doi.org/10.17016/FEDS.2023.060