Use of Tokenized Assets for Trade Collateral Approved in U.S.

The Commodity Futures Trading Commission (CFTC) approved the use of tokenization to manage trade collateral in the U.S. derivatives markets.

The CFTC’s Global Markets Advisory Committee issued a recommendation to expand the use of distributed ledger technology (DLT) to tokenize non-cash collateral. Specifically, it proposes that tokenization be used to manage trading collateral in the U.S. derivatives markets.

Tokenization is expected to expand the range of assets available for collateral trading on traditional derivatives exchanges. In particular, tokenized non-cash assets could be used to provide regulatory margin for cleared and non-cleared derivatives. In addition, the regulator described certain conditions and limitations on the use of tokenized assets to mitigate credit, market and liquidity risks.

Commissioners unanimously approved the recommendation. The report notes that the use of distributed ledger technology and tokenization will help solve a number of systemic problems in the U.S. financial markets and increase their competitiveness. 

Tokenization has recently been increasingly used in various fields. For example, one of the largest banks in South Korea launched a tokenization pilot project in early November 2024, which will improve the process of refunding the Goods and Services Tax (GST) on purchases in retail stores.