Optimal Design of Tokenized Markets

Antoine Martin (New York Fed)

April 26, 2022

BDF Paris

Séminaire Banque de France


Trades in today’s financial system are inherently subject to settlement uncertainty. This paper explores tokenization as a potential technological solution. A token system, by enabling programmability of assets, can be designed to eradicate settlement uncertainty. We study the allocations achieved in a decentralized market with either the legacy settlement system or a token system. Tokenization can improve efficiency in markets subject to a limited commitment problem. However, it also materially alters the information environment, which in turn aggravates a hold-up problem. This limits potential gains from resolving settlement uncertainty, particularly for markets that depend on intermediaries.


Tokenization; programmability; settlement uncertainty; asymmetric information;

JEL codes

  • D82: Asymmetric and Private Information • Mechanism Design
  • D86: Economics of Contract: Theory
  • D47: Market Design
  • G29: Other