Cook, Perspectives on Tokenization and Implications for the Financial System

Home News & Events Speeches Speech PDF <div class="js-disabled text-center"> <span class='icon icon-alert icon--jsAlert'></span> <span><strong>Please enable JavaScript if it is disabled in your browser or access the information through the links provided below.</strong> </span> </div> May 08, 2026 Perspectives on Tokenization and Implications for the Financial System Governor Lisa D. Cook At the Central Bank of West African States (BCEAO) Conference on Digital Assets, Dakar, Senegal Share Watch Live I am happy to have the opportunity to return to and to speak in Dakar. Not far from here, I began my unexpected journey into the economics profession.1 As a graduate student at l'Université Cheikh Anta Diop de Dakar, I came to study philosophy and to write a thesis in African philosophy. However, I immediately started posing questions that became foundational in my conversion to economics, which would help provide the framework and skills to respond to these questions. Among them were the following: Why did a ballpoint pen that cost $0.10, at that time, in the United States cost the equivalent of $10 in Senegal? Why were some countries rich and some poor? Is there ultimately convergence among economies and one path to economic development and higher standards of living? Questions like these ignited my interest in understanding how the economy and monetary policy affect people's lives. Slide 1 I have been lucky enough to return to Africa many times. That included working in Rwanda and East Africa in the late 1990s and early 2000s, where M-Pesa, a mobile phone–based money transfer service, and other innovations piqued my interest in technologies that facilitate faster movement of capital and payments. I feel very fortunate to return to Dakar today, after many years, and to engage with an issue that is having a notable effect on the global financial system: tokenization in financial markets. Tokenization could specifically offer compelling benefits in West Africa and other emerging economies, including potentially faster cross-border payments and better access to capital markets.2 More broadly, tokenization could facilitate improvements upon frictions in financial markets today, with purported benefits ranging from improvements in settlement times, as well as enhanced recordkeeping and automation, to new ways of using traditional assets. This potential warrants careful consideration of the innovation's opportunities and challenges, particularly from a central bank perspective. If you will indulge me, three dimensions of tokenization will be my focus today: I will more deeply explore (1) the opportunities tokenization could provide, (2) financial-stability considerations and potential challenges should the innovation scale, and (3) the Fed's role with respect to tokenization and digital assets more broadly. Before diving in, I want to highlight two grounding principles. First, I support and encourage financial innovation. Second, I carefully monitor the financial-stability implications that accompany all innovation. It is my responsibility as a monetary policymaker to know and weigh these opportunities and risks. This responsibility applies to my role at the Federal Reserve, where I serve as the chair of the Board's Committee on Financial Stability, and in my roles with the Financial Stability Board (FSB). I am both co-chair of the FSB's Regional Consultative Group for the Americas and a participant on the Standing Committee on Assessment of Vulnerabilities. These roles allow me to apply a financial-stability lens to issues that could affect the financial system at a global level. Tokenization in the Context of Financial Markets To start, allow me to define tokenization for our purposes today. The term "tokenization" is broad and takes on different meanings in different contexts. In the broadest sense, tokenization refers to the concept of representing any number of items digitally. The concept has been applied to fine art, music royalties, and even soccer cleats.3 In the context of financial market innovation, tokenization is generally thought of as the process of generating and recording a digital representation—a token—of an asset on a new platform or technology, such as distributed ledger technology (DLT).4 Blockchain is a common form of DLT in which details of transactions are recorded in blocks of information.5 Generally, an asset is considered "tokenized" when a DLT is used to record ownership of that asset. Transactions involving tokens are then constructed using "smart contracts," or computer code that can execute predefined actions once certain conditions are met, among other capabilities. Many of the potential benefits of tokenization flow from this automated and programmable functionality. This relatively new innovation is already showing promise, potentially deepening connections between innovative technologies and traditional financial systems. Financial markets may be primed to adopt this technology for two reasons. First, they benefit from established liquidity, infrastructure, and regulatory frameworks that can be leveraged; second, they contain siloed systems and processes that involve multiple intermediaries and manual steps that are, in many cases, amenable to enhancements from the automation and programmability offered by tokenization. It is this intersection between large existing markets—such as bonds, money market fund (MMF) shares, and repurchase agreements (repos)—and opportunities for new functionality or efficiencies in areas such as collateral and liquidity management that could drive the adoption of tokenization in financial markets. We already observe increased interest and investment in tokenization in financial markets, with tokenized assets in the U.S. more than doubling their market capitalization in the last year to around $25 billion.6 Let's take a closer look at some of the trends over time. Figure 1 shows growth over the past five years, separating financial assets (in dark blue) from nonfinancial assets (in light blue). This growth is being driven in part by the entrance of large financial institutions into the market, often in collaboration with emerging fintech firms with expertise in blockchain technology. Figure 2 takes a closer look at the recent growth in tokenized financial assets. The largest category is government bond funds (in dark blue). Meanwhile, credit funds (in light blue) and MMFs (in beige) are growing quickly. While still small relative to the size of the asset classes being tokenized, this growth represents increasing interest in leveraging this technology for facilitating wholesale transactions, earning on-chain interest income, and enabling broader cross-border ownership. Tokenization Framework With this context in mind, I would like to briefly walk through a framework for thinking about different forms of tokenization. I think of innovations in tokenization along two dimensions: (1) the infrastructure, or rails, that assets are transferred on and (2) the assets themselves. In terms of infrastructure, tokenization involves new platforms and arrangements utilizing DLT, including blockchains, that can provide new features and functionality for financial market transactions. Those features include programmability through smart contracts, or executing transactions when certain predefined conditions are met, and composability, or creating products that combine features and functions in new ways.7 For example, smart contracts can enable multiple legs of a transaction to be combined and executed automatically, such as the settlement of two linked foreign exchange transactions. Such features could support the construction of complex trades and enable the execution of financial transactions in more flexible and efficient ways. In terms of the assets themselves, I see them as taking two primary forms. One is directly issued assets. In this case, assets are issued and custodied directly on DLT without an underlying conventional reference asset. Therefore, the actual issuance and transfer of ownership occur entirely on blockchain rails. Financial instruments issued solely on DLT could include a variety of claims on the issuer, such as bonds or other debt instruments, although such products are currently rare. The other form is representations of assets that were originally issued via conventional means. In this form, the reference assets are locked and remain in the existing legacy markets and clearing systems, but ownership is represented via tokens on a blockchain. This type of tokenization could allow a token holder to have a legally enforceable ownership claim over the token's reference asset, such as government bonds, corporate equity, MMFs, or a nonfinancial asset like a barrel of oil or a warehouse. The remainder of my remarks will focus on this form of tokenization. As you can see, the possibilities for new kinds of financial arrangements with tokenization are very broad, and this type of framework helps assess potential opportunities and challenges presented by the technology. Opportunities and Benefits Having established that this is a fast-growing field filled with notable recent innovations, allow me to take a deeper dive into potential opportunities related to tokenization in financial markets. I can understand why financial firms are exploring this technology, as it demonstrates the potential to enhance transparency, improve efficiency through automation, and offer settlement flexibility in financial market transactions. Many of these benefits are illustrated through improvements to collateral mobility and liquidity management processes, which I view as the major use case for financial institutions. More broadly, tokenization could also increase competition and expand market access to different assets. Let me expand on each of these opportunities. First, tokenization could improve existing collateral and liquidity management processes in several meaningfu