The International Monetary Fund released an explanatory video on its X handle today examining tokenized markets. The video outlined potential advantages, while also warning about risks.
Crypto tokens linked to traditional financial assets may bring new risks for investors, the global securities regulator IOSCO said. The organization noted that while most risks are already addressed by existing frameworks, the underlying technology could introduce additional vulnerabilities.
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Differences in token structures can create uncertainty over asset ownership, and third-party issuers may add counterparty risk. “Tokenization could also suffer from potential spill-over effects from increased inter-linkages with the crypto asset markets,” IOSCO added.
Advantages Highlighted by IMF
“Tokenization can make financial markets faster and cheaper, but efficiencies from new technologies often come with new risks,” the IMF video said. It explained that tokenization Tokenization Tokenization represents the process of substituting a sensitive data element with a non-sensitive equivalent, i.e. token, which bears no extrinsic or exploitable meaning or value. In essence, the rights to the ownership of an asset are converted into a digital token. Tokenization can be used to own an entire unit of an asset. For example, one token that represents the ownership of a piece of real estate or to split ownership of a single unity of an asset such as 200,000 tokens, each one represen Tokenization represents the process of substituting a sensitive data element with a non-sensitive equivalent, i.e. token, which bears no extrinsic or exploitable meaning or value. In essence, the rights to the ownership of an asset are converted into a digital token. Tokenization can be used to own an entire unit of an asset. For example, one token that represents the ownership of a piece of real estate or to split ownership of a single unity of an asset such as 200,000 tokens, each one represen Read this Term allows assets to be “faster and cheaper to buy, own, and sell” by reducing reliance on intermediaries such as clearinghouses and registrars.
Researchers studying early tokenized markets have reportedly “found significant cost savings,” the IMF said, noting that programmable platforms can enable near‑instant settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term and more efficient use of collateral.
Risks and Market Volatility
However, the fund cautioned that these same efficiencies can heighten familiar dangers. Automated trading has “already led to sudden market plunges known as flash crashes,” and tokenized markets with instantly executed trades “can be more volatile” than traditional venues.
In stressed conditions, complex chains of smart contracts “written on top of each other” may interact “like falling dominoes,” potentially turning local problems into systemic shocks.
Fragmentation and Liquidity Concerns
The video also noted the risk of fragmentation if multiple tokenized platforms emerge that “don’t speak to each other,” which could weaken liquidity and undermine the promise of faster, cheaper markets. Governments’ involvement in the evolution of money was another focus.
“Governments have rarely been content to stay on the sidelines during important evolutions of money,” the video said, adding that history suggests they are likely to take “a more active role in the future of tokenization.”
Tokenization as Mainstream Policy Issue
The video signals a shift in the IMF’s approach to tokenization. While the fund has researched tokenized market structures and digital money for years, presenting its findings in a public-facing video indicates that tokenization is increasingly seen as a mainstream policy issue.
Tokenized markets have grown into a multibillion-dollar industry. Major players include BlackRock’s BUIDL fund, which has become the world’s largest tokenized Treasury fund, surpassing Franklin Templeton’s Franklin OnChain US Government Money Fund, and expanding through 2024 and 2025.
The IMF’s video emphasized that these markets will continue to develop under close regulatory scrutiny, with governments ready to intervene if needed.
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