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

Which of the following is a commonly cited benefit of tokenization for financial market efficiency that arises from combining assets and programmable features on one platform?

A key efficiency benefit is fewer reconciliation and intermediation steps, plus automation of processes such as collateral movements through programmable features. Tokenization does not remove legal risk, guarantee liquidity, or eliminate the need for a settlement asset.

  1. AReduced reconciliation and intermediation steps, and the potential to automate processes such as collateral movementsCorrect
  2. BElimination of all legal and regulatory risk because transactions are recorded immutably
  3. CGuaranteed higher liquidity for every tokenized asset regardless of investor demand
  4. DRemoval of the need for any settlement asset such as central bank or bank money

Explanation

Shared records and programmability can cut reconciliation and intermediaries and allow automation. Immutability does not remove legal risk, liquidity depends on demand, and settlement still requires a safe settlement asset.

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