Nasdaq CEO Says Tokenization Could Free Billions In Collateral

Tokenization could release tens of billions of dollars tied up in collateral across global financial markets, according to Nasdaq CEO Adena Friedman. Speaking at TOKEN2049 in Singapore, Friedman said converting financial assets into digital tokens could make them easier to transfer between banks and other financial institutions. The shift could also support changes in market operations as financial firms assess continuous trading and real-time risk management.

Tokenization could change how financial assets move

Friedman identified US Treasuries, equities, and money market funds as assets that could benefit from tokenization. When these instruments and money flows are represented through digital tokens, financial institutions could move collateral more easily across the financial system.

Tokenization involves representing assets, such as stocks and bonds, as digital tokens that can be transferred using blockchain technology. In financial markets, collateral supports transactions and helps firms meet their obligations. The ability to transfer it more efficiently could change how institutions manage funds and assets during trading.

The potential release of tens of billions of dollars in collateral reflects the value that may be tied up in existing processes. Tokenization could allow financial firms to move eligible assets more quickly, although the scale of any change will depend on how institutions adopt the technology and adjust their operations.

Friedman also discussed the changes required for markets to operate 24 hours a day, 7 days a week. Continuous trading would require more than changes to exchange systems. Banks and other financial institutions would need to manage risk, collateral, and related processes throughout the day, without relying on market closures to update systems or complete checks.

“Everything has to be real-time all the time,” Friedman said.

This approach would require financial firms to keep their systems and risk controls active as transactions occur. Processes that currently depend on fixed market hours would need to support activity outside those windows.

Friedman also noted that continuous trading would not suit every asset. Some assets may not have enough liquidity to support trading at all hours. Their trading patterns and market activity would affect whether a 24-hour model would be practical.

AI tools could support continuous risk management

Artificial intelligence is expected to play a growing role in managing risks as financial markets move towards continuous operations. Nasdaq has introduced digital agents within its risk management platform. These agents initially provide recommendations, according to Friedman.

Banks could eventually allow such agents to take more direct action. That could give financial institutions additional tools to respond to changing risks as transactions occur. The comments did not specify when banks might adopt that approach or how widely the tools would be used.

Kraken co CEO Arjun Sethi also discussed interest from companies outside the United States in tokenization and access to American capital markets. He said international businesses were considering options that included listing their shares in the United States.

Sethi cited a company generating about $25 million in revenue that was examining ways to access capital markets. The example highlighted interest among businesses in evaluating funding options beyond their domestic markets.

The discussions at TOKEN2049 covered how tokenized assets, continuous trading, and AI-based risk tools could affect financial market operations. Their adoption will depend on the needs of individual assets and the ability of financial institutions to manage transactions, collateral, and risk in real time.