Tokenization: Overview and Financial Stability Implications

Tokenization, the process of creating crypto tokens that represent non-crypto reference assets, is a rapidly growing financial innovation that creates interconnections between digital asset markets and the traditional financial system. The paper by Francesca Carapella, Grace Chuan, Jacob Gerszten, Chelsea Hunter and Nathan Swem outlines its potential benefits and financial stability implications. It states that, at sufficient scale, tokenized assets could transmit volatility from crypto asset markets to the markets for the tokens' reference assets. The authors note that the views expressed are their own and do not indicate concurrence by other Board staff or the Board of Governors.