Skip to content

FRM Part II · FRM Exam Part II · Tokenization and Financial Market Inefficiencies

A bank considers holding tokenized government bonds on a permissionless blockchain and wants to understand the main new concentration risk. Which exposure should the risk manager flag first?

The key new concentration risk is dependence on a few infrastructure providers such as validators, custodians, oracles or wallet services. If one fails or is attacked, access and settlement for many tokenized assets could be disrupted at once, so the risk manager should assess it as an operational concentration exposure.

  1. ADependence on a small number of validators, wallet providers or infrastructure vendors whose failure could disrupt access to many assetsCorrect
  2. BThe inability of tokenized bonds to pay coupons
  3. CThe elimination of counterparty risk across all transactions
  4. DThe requirement that all holders be identified to the issuer by name on-chain

Explanation

Tokenized markets can rely on a few infrastructure providers such as validators, custodians, oracles or wallet services, creating operational concentration. A failure could block access or settlement for many assets. Coupons can be paid via smart contracts, and counterparty risk is not eliminated.

Did you get it right without looking?

One question tells you little. A timed set on Tokenization and Financial Market Inefficiencies shows your real accuracy, how long you take and where you lose marks.

Practise Tokenization and Financial Market InefficienciesFree diagnostic mock

More Tokenization and Financial Market Inefficiencies questions