Skip to content

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

A tokenized fund holds assets that take several days to sell in stressed markets but offers investors 24/7 on-chain redemption at a daily-calculated NAV. Which regulatory response best addresses the resulting liquidity mismatch?

The best response is to align redemption terms with asset liquidity using tools such as notice periods, swing pricing or gates. These limit first-mover advantage and run risk. Faster NAV updates, removing restrictions or holding tokenized assets do not fix the underlying mismatch between redeemable liabilities and slow-to-sell assets.

  1. AAlign redemption terms with asset liquidity, for example through notice periods, swing pricing or redemption gatesCorrect
  2. BIncrease the frequency of NAV publication to hourly
  3. CRemove all redemption restrictions to improve transparency
  4. DRequire the fund to hold only tokenized assets

Explanation

The issue is the mismatch between liquid liabilities and less liquid assets, so tools that tie redemption terms to asset liquidity (notice periods, swing pricing, gates) address it directly. More frequent NAVs or removing restrictions do not change asset liquidity and may worsen first-mover advantage, while holding tokenized assets does not make them liquid.

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