Tokenisation refers to the use of new technologies, such as distributed ledger technology (DLT), to issue or represent assets in digital form as tokens. These tokens can represent traditional financial assets, such as securities and bank deposits; physical assets like real estate; or new assets representing claims against the issuer.

Tokenisation is currently small in scale but growing, with potential benefits including improved efficiency, reduced costs, increased transparency and broader investor access through asset fractionalisation. However, many of these benefits are unproven and may involve trade-offs, such as increased operational complexity, liquidity pressures and regulatory uncertainty.

Against this background, in October 2024, the Financial Stability Board (FSB) published the report The Financial Stability Implications of Tokenisation to examine current developments in tokenisation, assess associated financial stability vulnerabilities and identify policy issues for consideration.

The report focuses on DLT-based tokenisation, as this is the technology underpinning most private and public sector tokenisation projects to date. In particular, it focuses on DLT-based tokenisation of financial assets, excluding central bank digital currencies (CBDCs) and cryptoassets, which are covered in separate reports by the FSB and other global standard-setting bodies.

Tokenisation of financial assets using DLT is still at an early stage. Projects are often small-scale and experimental. Notable examples include tokenised bonds issued by the European Investment Bank and JPMorgan's JPM Coin for wholesale payments. Broader adoption is constrained by limited investor demand, lack of interoperability between DLT platforms and legacy systems, and regulatory and legal uncertainty.

Key features of tokenisation relevant for financial stability include the following:

The FSB identifies five key categories of financial stability vulnerabilities associated with DLT-based tokenisation, many of which mirror those in traditional finance but may be amplified by new technology and governance arrangements:

Liquidity and maturity mismatch: Differences between token and reference asset characteristics may lead to run risks and redemption pressures, especially if tokens are perceived as more liquid than the underlying asset.

Leverage: Composability may facilitate rehypothecation of tokens – or using tokens received as collateral for further borrowing – which increases leverage, especially in the absence of regulatory limits.

Asset price and quality risks: Opaqueness in smart contracts and reliance on unregulated oracles could impair price discovery and asset valuation. Discrepancies between token and reference asset prices may emerge due to legal or market frictions.

Interconnectedness: Tokenisation platforms could become critical infrastructure linking multiple institutions and activities, introducing new contagion pathways. Global, 24/7 operability may exacerbate volatility and complicate oversight

Operational fragilities: Vulnerabilities arise from smart contract errors, private key mismanagement, lack of governance standards and the immutability of DLT transactions. Permissionless networks may further lack accountability and resilience.

Tokenisation currently poses minimal financial stability risks owing to its small scale, focus on permissioned platforms, limited programmability and low interconnectedness. However, risks could materialise under certain conditions:

As an initial response, the FSB suggests that standard-setting bodies and national authorities should: