Yaiza Cabedo
Financial Sector Expert - International Monetary Fund

Yaiza Cabedo is a financial sector expert at the International Monetary Fund, specialising in financial market infrastructures, digital finance, and capital-market development. At the Monetary and Capital Markets Department, she works across FSAP assessments, technical assistance missions, and policy initiatives on payments, securities settlement, clearing, and the impact of tokenization on market infrastructure. Her recent work includes analytical projects examining how clearing and settlement are evolving in tokenized environments. Before joining the IMF, she worked at the European Securities and Markets Authority, where she focused on derivatives, securities markets, post-trade infrastructure, and financial innovation.

Tokenized Markets: Foundations for Scale

Disclaimer: The views expressed herein are those of the author and should not be attributed to the IMF, its Executive Board, or its management.

The way financial assets are issued, recorded, settled and used as collateral is undergoing a profound transformation. While markets today are highly sophisticated and efficient, they also rely on multiple closed-loop systems that require costly reconciliations. Throughout the lifecycle of a transaction, many different proprietary systems intervene. In cross-border transactions, the need to reconcile and agree on the state of an asset across multiple parties becomes even more demanding. Blockchain and tokenization can help alleviate these frictions by offering a shared record of ownership, reducing the need for reconciliation and making the lifecycle of a transaction more efficient through smart contracts and atomic settlement, ensuring that all conditional legs of a transaction are executed together—or not at all.

Yet tokenization has not expanded as rapidly and at the scale that many anticipated, for two main reasons. One concerns harmonized legal and regulatory clarity recognizing tokenized assets, on-chain issuance and settlement; the other relates to the availability of safe and risk-free settlement assets. The importance of this second point becomes clear when we consider how transactions settle today.

Today, citizens access commercial bank money through bank deposits, while transfers between different banks ultimately settle in risk-free central bank money through accounts held at the central bank. This risk-free foundation gives the system credibility and stability. In a tokenized world, new kind of settlement assets appear, and still an equivalent risk-free settlement asset is essential for preserving financial stability and is a precondition for the broader development of tokenized finance.

The main types of settlement assets on chain are tokenized central bank reserves, tokenized deposits, and stablecoins. Each of these assets offers a different balance between transferability, safety and integration with the existing financial system.

At one end of the spectrum, stablecoins are on-chain bearer instruments – whoever holds them owns them – and they can be transferred peer-to-peer independently of the issuer. In cross-border transactions, they can significantly reduce the time and cost associated with correspondent banking and remittances by shortening long chains of intermediaries. However, unlike deposits, stablecoins are not necessarily obligations of regulated banks and therefore carry the issuer’s default risk. For this reason, while stablecoins offer important advantages in certain use cases, they are generally not well suited as settlement assets for interbank or wholesale markets.

Tokenized deposits take a different approach. They replicate a bank’s liability on-chain, with clients holding a claim on the issuing bank. Because the bank remains responsible for knowing its customers, transfers cannot be as unrestricted as with bearer instruments. When a client of Bank A pays a client of Bank B using tokenized deposits, there must be a mechanism to clear those payments and a settlement asset to settle the resulting interbank flows. Initiatives such as that of The Clearing House (TCH), involving a group of major U.S. banks, have significant potential because they seek to make tokenized deposits safely usable for payments by enabling clearing among participating banks while connecting to traditional payment systems for off-chain settlement in central bank money.

At the other end of the spectrum, tokenized central bank reserves, where available, would provide the on-chain equivalent of risk-free central bank money and the whole transaction would happen on-chain. Where tokenized central bank reserves are not available, another option is to connect tokenized environments to existing payment rails, building a bridge between on-chain and off-chain ledgers. This is a valid approach with trade-offs. It allows market participants to rely on payment infrastructure they already know and trust, while creating a bridge between on-chain assets and off-chain settlement in central bank money. However, because money and financial instruments remain on separate systems, this architecture limits atomicity and programmability, reducing some of the core advantages of using blockchain.

Tokenized markets may take different forms, but their ability to scale will depend on the same foundations that support today’s financial markets: robust infrastructure, safe settlement assets anchored in central bank money, and clear legal and regulatory frameworks. Public authorities have a central role in ensuring that innovation preserves trust, safety, and stability. The real question is not whether tokenized markets will continue to develop, but whether they will be built to scale safely.