Major Financial Institutions Testing Tokenized Deposits, BIS Report Highlights Risks and Benefits

According to Odaily, a recent report by the Bank for International Settlements (BIS) emphasizes that major financial institutions are currently experimenting with tokenized deposits to enhance settlement efficiency and programmability. However, the transition from traditional finance to tokenization may pose several risks, including potential governance and legal framework issues, as well as credit, liquidity, custody, and operational risks. These challenges may differ from those faced by traditional market infrastructures, necessitating a comprehensive evaluation by central banks. Tokenization offers numerous advantages, such as reducing transaction costs and accelerating transaction speeds. Despite these benefits, central banks are particularly focused on governance, legal, and liquidity risks associated with tokenized assets. The BIS report underscores the importance of addressing these concerns to ensure a smooth and secure transition to a tokenized financial system.