Tokenization of FX management, new approach of mitigating risks
At a time when we're constantly hearing about the “tokenization” of financial assets, and how this process will change our lives as corporate treasurers, isn't it worth asking how this could or can mature? It's an interesting question, because it will open several avenues for the treasurer of the future. It is interesting to explore how the concept of 'tokenisation of FX assets and financial instruments' is impacting corporate treasury, focusing on current and future applications across solutions. The financial world is changing fast, and we shouldn't miss out on the train of digital transformation, whose benefits are immense.
Tokenization of Everything and the Corporate Treasury
As we already published in former articles, corporate treasurers oversee a wide array of financial functions – from managing cash and liquidity, to financing, investments, payments, and risk management. The rise of “tokenization of everything” – converting real or financial assets and even processes into digital tokens on distributed ledgers – is poised to transform these treasury functions. Tokenization uses blockchain or distributed ledger technology (DLT) to create a digital representation of an asset or right, enabling fractional ownership, instant transfer, and programmable features via smart contracts. How tokenization is influencing corporate treasury operations today and the future potential across key areas, including FX, is an essential question to address. In trade business, where FX is an issue overseen by treasurers there are couple of areas such as: Paymlents in currencies, FX, trade finance, and collateral management (possibly).
How to define the “tokenization of assets in finance?
Tokenization of assets is the process of representing the ownership, rights, or value of a real or financial asset in the form of a digital token on a blockchain or distributed ledger. These tokens can be programmed, traded, or transferred securely and instantly, bringing liquidity, transparency, and automation to traditional finance. All what we treasurers want! The tokenization can apply to a wide range of assets, such as Financial Assets.
See list below:
1. Financial assets
2. Real Assets
3. Digital or Native Assets
4. Intangible or Rights-Based Assets
Key features
The key features of tokenized assets are Each token represents a legal/beneficial claim on the underlying asset; smart contracts can automate terms, compliance, or lifecycle actions; each token represents a legal/beneficial claim on the underlying asset; smart contracts can automate terms, compliance, or lifecycle actions; allows division into smaller parts, enabling access and liquidity; transactions recorded on a blockchain provide an audit trail; assets can be transferred in real-time, reducing settlement risk; and can be used across platforms (if standards exist). Some applications could be interesting for FX management: (1) Tokenized cash for instant FX conversion and intraday liquidity (e.g. JPM Coin, HSBC token deposits); (2) On-chain collateral management: Posting tokenized assets in derivatives or repo transactions, and (3) Payment automation: Using tokenized invoices or triggers (e.g. release funds upon delivery). It matters for treasurers as tokenization transforms how assets are: issued (e.g. faster issuance of CP, bonds); traded (e.g. 24/7 FX swaps); settled (e.g. atomic PVP or DVP) and managed (e.g. programmable treasury operations). It reduces friction, cost, and latency, while increasing control, security, and flexibility in financial operations.
Payments and FX in a Tokenized World
Corporate treasury is also responsible for payments to suppliers, employees, and other parties, as well as handling foreign exchange (FX) for cross-currency transactions. Tokenization is streamlining these activities by removing intermediaries and enabling atomic exchange of value. A cross-border payment that might take 2–3 days via correspondent banks can potentially be settled in seconds using tokenized currency on blockchain (even if SWIFT GPI has improved the cross-border payments). For example, a company could convert USD to a USD-backed stablecoin and send it to an overseas vendor who converts it to local currency tokens – all on a chain, with near-instant finality. This bypasses multiple bank fees and FX brokers. Large financial institutions have begun to demonstrate this. J.P. Morgan’s Onyx Network not only provides JPM Coin for USD payments but also has tested cross-chain transactions that link tokenized FX trades. In mid-2023, JPMorgan, together with MAS (Monetary Authority of Singapore), conducted a pilot where tokenized deposits in different currencies were swapped on a DeFi platform (as part of Project Guardian), achieving real-time cross-currency settlement with smart contract enforcement of FX rates. By 2024, JPMorgan took this further: in partnership with Chainlink, it executed a tokenized U.S. Treasury trade with an on-chain payment leg on a public blockchain, using its private network for the cash side. In this test, a tokenized Treasury asset was exchanged for a payment token in a single Delivery-vs-Payment (DvP) operation across two blockchains, coordinated by an interoperability protocol. The successful atomic settlement across networks is a proof-of-concept for FX and payment-versus-payment as well – implying that in the future, two tokenized currencies on different ledgers could be swapped simultaneously without settlement risk. Another practical example is Ant Group’s cross-border remittances: Ant’s blockchain-powered remittance system (used in Alipay) has leveraged tokenized fiat representations to do near-real-time money transfers between Hong Kong and the Philippines for low-value payments. This system essentially “tokenizes” the value being sent, even if it’s internally managed – yielding speed and cost advantages like stablecoins, while complying with local regulations (identities and transaction details are recorded for compliance).
FX risk management may also be enhanced by tokenization.
Smart contracts can be used to automate forward contracts or swaps – e.g. a contract could release a euro stablecoin in exchange for a dollar stablecoin at a preset rate on a future date, acting as a hedging instrument. Some fintech and bank pilots are underway to represent FX forwards as tokens that can be traded on DLT platforms, improving transparency and allowing more participants to net or offset exposures. The key benefits could be for payments, tokenization offers speed, cost reduction, and traceability. Each token transfer is final and recorded on a ledger accessible to both parties, reducing reconciliation effort. It also enables micro-payments or just-in-time payments that weren’t practical before (e.g. paying a supplier upon each small milestone or IoT sensor trigger in real time). For FX, tokenization could mitigate settlement risk (no Herstatt risk when done atomically) and improve access to liquidity by linking different token networks. Nevertheless, treasurers must consider regulatory factors. They must ensure that using tokenized payments complies with FX control laws, and that stablecoin issuers or payment networks are regulated. Network governance is crucial – for instance, JPM Coin is used in a permissioned network with KYC, ensuring only vetted participants, which addresses many compliance concerns. As public stablecoins come under regulatory frameworks (e.g. EU’s MiCA or potential US stablecoin legislation), their reliability for corporates should increase. Going forward, we may see major payment systems integrate tokenized money (for example, SWIFT is testing token transfer interoperability), allowing corporate ERP and treasury systems to interface with blockchain networks as easily as with bank APIs today.
It may be used for Collateral Management and Tokenized Assets.
Corporate treasurers often must post collateral for various obligations – for instance, margin for derivative trades, collateral for borrowings, or assets for repo transactions. Traditional collateral management is fragmented and slow, involving moving securities or cash between custodians, which can tie up liquidity. Tokenization is providing new ways to manage collateral more efficiently by representing assets as digital tokens that can be transferred or pledged instantaneously, even across entities that don’t share the same custodian. A prime example is J.P. Morgan’s Tokenized Collateral Network (TCN), launched under its Onyx/Kinexys platform. TCN allows financial participants to tokenize traditional assets (like shares in a money market fund or government bonds) and use the tokens to pledge collateral in financing deals. The underlying asset stays in its existing custody location, but the token – a sort of digital twin – is delivered to the collateral receiver, who can hold or even repledge it, knowing it represents a claim on the asset. This achieves the effect of moving collateral without physically moving the asset. Smart contracts on the private blockchain enforce the terms: for example, automatically releasing the token back to the pledgor when a loan is repaid or transferring it to the lender if a default occurs, according to pre-set rules (which mirror a Credit Support Annex or repo agreement). The programmability reduces manual intervention and errors in margin calls, and the speed (real-time movements) means treasurers can manage intraday liquidity far better – they could meet a margin call at 4:55pm with a tokenized asset transfer that settles in minutes, avoiding penalties or default.
Other usages
Market infrastructure providers are also embracing tokenized collateral. The DTCC (Depository Trust & Clearing Corp) announced in 2023 an initiative to create a digital collateral management platform using DLT. The idea is to enable interoperability where, say, a tokenized representation of a Treasury bond at one custodian can be seamlessly used to cover an exposure at another venue. Swift and partners have run trials linking tokenized asset platforms with existing payment systems to enable atomic PvP or DvP settlements for collateral exchanges, again aiming to minimize delays in moving collateral. All these efforts point to a future where collateral mobility is greatly increased: any asset can be readily pledged and substituted from a single dashboard, freeing up excess and ensuring the “right asset is in the right place at the right time” to minimize financing costs.
For corporate treasurers, better collateral management means freeing trapped liquidity. Tokenization could allow them to deploy, for example, their investments as collateral to secure a credit line on short notice. It also means reduction of counterparty risk: using DLT, one can achieve true delivery-versus-payment (DvP) or delivery-versus-delivery for collateral swaps, so that you don’t release collateral unless the counterparty’s obligation (cash or asset) is received simultaneously. The JPMorgan Chainlink example cited earlier is essentially DvP for collateral (tokenized Treasury vs tokenized cash). This reduces the risk of one party failing to deliver after the other has sent collateral. Smart contracts can also automate collateral valuations and calls – e.g. reading price oracles and auto-triggering additional collateral posting if value falls. This introduces transparency and speed in a volatile market scenario. However, it also requires treasurers to carefully program and test these rules, and to manage new risks like oracle failures. One more aspect is internal collateral optimization: Large corporates often have many subsidiaries posting duplicative collateral to different banks. In the future, a corporate might maintain a pool of tokenized collateral assets that can be dynamically allocated across obligations using smart contracts, with the blockchain providing an auditable trail of which asset is encumbered for which exposure. This could lead to more optimal use of assets and lower overall collateral needs.
Regulatory and Risk Management Considerations
While tokenization offers many advantages, corporate treasurers must tread carefully due to regulatory and risk management factors. Compliance and Legal considerations are at the forefront. Any token that represents an asset (whether a security, a derivative, or a payment instrument) likely falls under existing regulations. The regulations will evolve with technologies and new products. Crucially, regulators and legal systems will continue to adapt. We might see central banks issue wholesale and retail CBDCs that integrate with corporate treasury directly (some central banks may require large firms to use CBDCs for certain payments to encourage adoption). Legal recognition of smart contracts could become commonplace in commercial law – so a smart contract that auto-executes a payment could be seen as having the same force as a signed paper contract. This will reduce disputes and the need for intermediaries to enforce contracts. The trajectory suggests that the corporate treasury will become a much more technology-driven, analytical function. Treasurers will need to understand blockchain/DLT, coordinate with IT on systems integration, and maintain a keen awareness of digital asset regulations. Those that embrace tokenization early can shape industry’s best practices and perhaps gain competitive advantages (e.g., better financing rates, more resilient supply financing, lower operational costs). Those that lag may find themselves at efficiency and information disadvantages in a tokenized world.
Toward a Tokenized Economy?
Looking ahead, the concept of “tokenization of everything” suggests a future where most assets and contracts in an economy have a digital token representation on some interconnected ledgers. For corporate treasury, this could be transformative. In a fully tokenized ecosystem, cash, inventory, machinery, intellectual property, contracts – all could potentially be tokenized. The tokenization of assets and processes is no longer a theoretical concept – it is unfolding in real-world corporate treasury operations today, albeit in early stages. The benefits for treasurers are significant – improved liquidity and cash utilization, faster and more secure payments, greater access to financing options, and real-time visibility and control. Yet, these come with new responsibilities in risk management and compliance. Treasurers must ensure robust controls over digital assets, adhere to evolving regulations, and manage technological risks. Collaboration with legal, IT, and finance teams is essential to build a governance framework for tokenized operations. In navigating the regulatory landscape, treasurers find both challenges and support: regulators are keen on harnessing the efficiency of tokenization but are equally cautious about systemic risks and investor protection. Security, too, is a double-edged sword – blockchain can enhance transparency and trust, but the cyber risks around private keys and smart contracts require vigilant safeguards.
“Promised land” (Bruce Springsteen)
Ultimately, “tokenization of FX” promises a more integrated financial world where value moves as seamlessly as information. Corporate treasury stands to be a central beneficiary and enabler of this shift. In the coming years, we can expect tokenization to move from pilot projects to at-scale adoption, much as digitization did in earlier decades. Treasurers who embrace innovation will not only cut costs and reduce friction in their own operations but also help transform how companies interact financially with each other and with the broader financial markets. As the technology matures and regulatory clarity solidifies, tokenization could well become a standard tool in the corporate treasurer’s toolkit – ushering in an era of faster, smarter, and more inclusive financial management for companies of all sizes. In such an environment, it is advised to be well-equipped with FX management automation tools (i.e. CMA, such as KANTOX) to face the future safely.
François Masquelier, Simply Treasury – Luxembourg – June 2025
Capital Market Legal Advisor | Business Law| Contract Specialist | Financial & Corporate Law | Tech & Blockchain Law | FinTech & LendTech Legal Expert
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