Tokenization of assets and distributed ledger technologies in financial markets (OECD)

The OECD published a paper that analyzes possible reasons for the absence of a market for tokenized assets and puts forward policy considerations for financial supervisors and policy makers, to which Josiah Hernandez and I contributed material on the wholesale central bank digital currency (CBDC) aspects. Possible impediments tokenization growth identified include “chicken and egg” problems (e.g., the lack of liquidity and absence of an ecosystem for tokenized assets, and the need for distributed ledger technology (DLT) payment rails (including wholesale CBDC) to exist for the payment leg of settlement), market functioning challenges of instant and “atomic” settlement, the lack of custodians to onboard investors and assets, and legal issues (e.g., the legal status of smart contracts, token ownership not necessarily according ownership to the underlying assets). It concludes that “with the proper foundations in place, new possibilities of potential efficiencies and productivity gains in tokenized assets markets can be brought about in a manner that need not negatively impact financial stability, law enforcement, local and global policy regimes”. [Read more at the OECD]

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