Where should liquidity come from for token markets?

BX Digital hosted a virtual seminar entitled ‘Token markets need liquidity – where should it come from?’ in collaboration with Future of Finance. The seminar focused on a key challenge for the future of financial markets. After all, liquidity is the foundation of any functioning market. Markets can only develop sustainably if assets can be traded quickly and without significant price fluctuations. However, crypto and token markets in particular often suffer from insufficient liquidity.

A common misconception is that liquidity is created solely by a large number of buyers and sellers. In reality, however, traditional markets rely on specialised intermediaries such as market makers, brokers, banks, trading venues and high-frequency traders. Blockchain technology was originally developed to make these intermediaries redundant. The seminar therefore explored whether blockchain-based financial markets can grow without such intermediaries and how tokenisation can contribute to more efficient liquidity provision. The role of exchanges in this context was also discussed.

A key finding of the discussion was that specialised intermediaries remain indispensable, even in tokenised markets. Regulated exchanges create trust among issuers and investors alike. Tokenised money market funds can contribute to liquidity by providing interest-bearing on-chain cash and collateral solutions. ‘Native’ tokens — digital assets that exist independently of traditional infrastructures — also offer clear advantages, including round-the-clock trading, instant settlement and transparent ownership, which could significantly increase market activity.

It was also emphasised that settling token transactions in central bank money would strengthen the confidence of institutional investors and thus promote market liquidity. Clearing and netting transactions via central counterparties, an established principle of traditional markets, could also increase liquidity in tokenized markets. Greater use of fiat currencies on the blockchain would help avoid workarounds such as stablecoins and increase the velocity of money.

Tokenisation has the potential to transform new assets into financeable instruments, thereby increasing the liquidity of a wide range of asset classes. However, this requires interoperability between traditional and tokenised markets. This can only be guaranteed through regulated exchanges. Experience to date shows that institutional investors prefer to trade tokenised assets via established, regulated trading platforms.

Conclusion: Even in a tokenised financial world, liquidity does not arise by itself. It must be created in a targeted manner through trustworthy, professionally operated and regulated infrastructures. Trading and Settlement Facility such as BX Digital play a key role in this. They combine the innovative potential of blockchain technology with the proven principles of traditional financial markets, thereby laying the foundation for sustainable growth and trust in the digital capital market.