How Does the Tokenization of a Derivative Improve Its Fungibility?

Fungibility is the property of an asset where individual units are interchangeable and indistinguishable. Tokenization standardizes the derivative's contractual terms and embeds them into a uniform digital token.

This makes all tokens representing the same derivative type identical and interchangeable, much like units of a cryptocurrency. This standardization is crucial for creating a liquid secondary market, as traders can easily exchange one token for another.