Cover FinTech Notes
Buy Book in Print
Tokenization and Financial Market Inefficiencies
Author:
Itai Agur
Search for other papers by Itai Agur in
Current site
Google Scholar Close
https://orcid.org/0000-0002-6150-737X
,
German Villegas Bauer
Search for other papers by German Villegas Bauer in
Current site
Google Scholar Close
,
Tommaso Mancini-Griffoli
Search for other papers by Tommaso Mancini-Griffoli in
Current site
Google Scholar Close
,
Maria Soledad Martinez Peria https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Maria Soledad Martinez Peria in
Current site
Google Scholar Close
, and
Brandon Tan
Search for other papers by Brandon Tan in
Current site
Google Scholar Close
Series:
Fintech Notes
Volume/Issue:
Volume 2025: Issue 001
Language:
English
Publication Date:
29 Jan 2025
DOI:
https://doi.org/10.5089/9798400298905.063
ISBN:
9798400298905
ISSN:
2664-5912
Pages:
33
Keywords:
Tokenization; central banks; asset lifecycle; financial markets; financial asset market friction; B. market infrastructure investment externality; financial market inefficiency; IMF Library; Note 2025/001; D. knowledge externality; Bonds; Smart contracts; Securities markets; Liquidity; Blockchain and DLT; Global
Legal-disclaimer:
Fintech Notes offer practical advice from IMF staff members to policymakers on important issues. The views expressed in Fintech Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.8 MB) Download Epub
Most financial assets are digital today. Tomorrow, they may be tokenized. Tokenization implies recording and transferring assets on a widely shared and trusted digital ledger that can be programmed. Interest in tokenization is strong and experiments abound, but what are the consequences of this new trend for financial markets? This note introduces a taxonomy and a conceptual framework centered on market inefficiencies to evaluate this question. Some inefficiencies could decline across the asset life cycle. Others would remain, however, and new ones could emerge. Issuing, servicing, and redeeming assets might involve fewer intermediaries and thus become cheaper. The costs of trading assets may also decrease as tokenization lowers some counterparty risks and search frictions and offers flexibility in settlement. Additionally, greater competition among brokers could lower transaction fees. However, tokenization may amplify shocks if it induces institutions to become more interconnected and hold lower liquidity buffers or higher leverage, potentially jeopardizing financial stability. Programs themselves may introduce new risks related to strings of contingent contracts or faulty code. While competition may grow among financial intermediaries, the provision of market infrastructure could become more concentrated due to network effects.
  • Collapse
  • Expand
Cover FinTech Notes
FinTech Notes
ISSN:
2664-5912
Publisher:
International Monetary Fund