Tokenization and Financial Market Inefficiencies (IMF Fintech)

Summary

• The Boston Consulting Group estimates that asset tokenization could reach $16 trillion or 10 percent of global GDP by 2030.p.5
• Bond tokenization reduces underwriting fees by an average of 0.22 percentage points compared to conventional bonds.p.17
• Yield spreads for tokenized bonds are estimated to be 0.78 percentage points lower relative to matched conventional bonds.p.17
• Bid-ask spreads for tokenized bonds are 0.035 percentage points lower than for matched conventional bonds.p.17
• Newly issued blockchain-based asset-backed securities in China show yields that are on average 25 basis points lower than traditional ABS.p.17
• Automated portfolio deployment of cash via tokenization is estimated to yield a 24-basis point reduction in management fees to investors.p.17

Key insights

1. Digital token ledgers rely on three continuous core features: sharedness, trust, and programmability.p.5
2. Internal programmability integrates database records with execution code, enabling atomic settlement and contingent smart contracts.p.9
3. Issuing native tokens on shared ledgers can lower issuance transaction costs by bypassing legacy intermediaries like registrars and custodians.p.13
4. Simultaneous delivery-versus-payment settlement on shared programmable ledgers effectively mitigates counterparty risk in immediate asset exchanges.p.14
5. Addressing derivative counterparty risk on tokenized ledgers requires locking in full collateral for the contract's duration or relying on trusted central counterparties.p.15
6. Instantaneous settlement reduces opportunity costs by shortening the duration collateral remains locked during trade reconciliation.p.15
7. Enhanced ledger sharedness and trading speed can increase interdependencies, accelerating financial shock transmission across institutions.p.19
8. The proliferation of non-interoperable private ledgers threatens to fragment trading volume and erode positive network liquidity externalities.p.21
9. Shared ledgers facilitate instant verification of ownership across institutions, reducing client switching costs and boosting competitive pressure on brokerage fees.p.23