Definition ∞ Risk tokenization involves converting specific financial risks into tradable digital tokens on a blockchain. This permits the fractional ownership and transfer of risk exposure, making it more accessible and liquid. Examples include tokens representing insurance policies or credit default swaps. This process allows for new forms of risk management and capital allocation within decentralized finance.
Context ∞ Risk tokenization is an emerging area within decentralized finance (DeFi), seeking to create more efficient and transparent markets for various types of financial risk. Current discussions often center on the regulatory classification of these tokens and the development of robust pricing models. Future developments include the expansion of tokenized real-world assets and insurance derivatives, potentially democratizing access to complex risk instruments.
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