Amy and Bob explore the concept of tokenization—the digital representation of assets using Distributed Ledger Technology (DLT). Drawing on insights from the Financial Stability Board’s (FSB) executive summary and other sources, they outline the potential advantages, including greater efficiency, transparency, and programmability. At the same time, they stress that many of these benefits remain largely theoretical at this early stage.
Their discussion highlights key aspects of tokenization that matter for financial stability, such as the reliance on third-party service providers and the risks tied to more complex structures. They also identify vulnerabilities that could emerge with wider adoption, including liquidity mismatches and operational fragilities.
While the current scale of tokenization limits systemic risk, the FSB cautions that as the technology matures, vulnerabilities may grow. To prepare, authorities are encouraged to strengthen data collection and reinforce regulatory frameworks to ensure financial stability in the years ahead.
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