- Key takeaway: Federal Reserve Gov. Lisa Cook said she does not believe tokenization will replace traditional finance. Instead, she sees it as a development that could help address existing friction points in the financial system.
- Expert quote: "Fully assessing and understanding tradeoffs between opportunities and risks is how we enable innovations to scale safely and sustainably." — Federal Reserve Gov. Lisa Cook
- What's at stake: While tokenization could yield efficiency gains, it could also create cybersecurity vulnerabilities and gaps in oversight as trading becomes more continuous and automated, Cook said.
Federal Reserve Gov. Lisa Cook said Friday that tokenization is unlikely to replace traditional finance, but instead could add efficiency across the financial system.
Speaking at a conference on digital assets hosted by the Central Bank of West African States in Dakar early Friday, Lisa Cook said tokenization could reduce friction in financial operations.
"I do not see tokenization as replacing traditional market infrastructure," Cook said. "It is important to acknowledge that certain barriers are in place in existing systems for policy or prudent risk-management purposes."
Instead, Cook said integrating tokenization with existing financial infrastructure and legal frameworks could improve the efficiency and functionality of the broader financial system.
She pointed to faster settlement times, improved recordkeeping and greater automation as key benefits of tokenization. Cook also said the technology could support complex multicurrency and multi-asset transactions that settle more quickly, while expanding market access for consumers and institutions.
Still, Cook cautioned that wider adoption of tokenization could create new financial stability risks that regulators would need to monitor.
"It is important to consider how risk dynamics could change or manifest in new or different ways with this technology," she said. "From my perspective as a policymaker, understanding these dynamics will both support financial stability and enable innovations to scale safely."
Cook said around-the-clock trading and settlement could accelerate a run on an issuer if disruptions in token markets outside normal trading hours intensify. She also raised operational and cybersecurity concerns, warning that reduced human oversight in systems such as smart contracts could lead to costly errors and expose platforms to attacks by bad actors.
"As processes become more automated, such as with smart contracts, humans are less able to correct for bugs or respond to outside threats," she said. "In addition, relatively new products and systems tend to be targeted by malicious actors looking for exploitable vulnerabilities, and cyberattacks are relatively common in the DeFi ecosystem."
Nonetheless, Cook said that she and members of the Fed support technological innovation and are working to fully understand tokenization and its implications.
"Fully assessing and understanding tradeoffs between opportunities and risks is how we enable innovations to scale safely and sustainably," she said. "Ultimately, the Fed's efforts to maintain financial stability are a service to the American people, and I know my global peers take a similar mindset.
"The Fed is engaging with other organizations and global peers to both monitor and support responsible innovation," Cook added.
Cook's comments echoed views previously expressed by
"The technologies are allowing for individuals to trade assets without giving up control of those assets to an intermediary — a critical distinction with centralized finance," he said. "However, there are other uses emerging from these technologies that look more like complements to centralized finance."
