Optimal Design of Tokenized Markets

Authors Michael Junho Lee, Antoine Martin, Robert M. Townsend

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Author Details

Michael Junho Lee
  • Federal Reserve Bank of New York, NY, USA
Antoine Martin
  • Federal Reserve Bank of New York, NY, USA
Robert M. Townsend
  • Massachusetts Institute of Technology, Cambridge, MA, USA

Cite AsGet BibTex

Michael Junho Lee, Antoine Martin, and Robert M. Townsend. Optimal Design of Tokenized Markets. In 3rd International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2021). Open Access Series in Informatics (OASIcs), Volume 97, p. 8:1, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2022)


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.

Subject Classification

ACM Subject Classification
  • Social and professional topics → Computing / technology policy
  • Computer systems organization → Distributed architectures
  • Tokenization
  • programmability
  • settlement uncertainty
  • asymmetric information


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