The IMF said tokenization could make financial systems faster and cheaper, but it may also leave them more exposed to sudden shocks and instability.
Tokenization refers to the process of placing traditional financial assets onto blockchain-based systems. While it promises greater efficiency, the IMF warned it could also heighten vulnerability to market disruptions.
“Frictions disappear — but so do buffers,” wrote Tobias Adrian, head of the IMF’s monetary and capital markets department, in a blog post.
In a tokenized setup, assets like stocks, bonds, and bank deposits are recorded on shared digital ledgers. Smart contracts handle trading, ownership transfers, and payments automatically, allowing settlement to occur in seconds instead of days.
By contrast, traditional finance relies on multiple steps—execution, clearing, settlement, and reconciliation—handled by different intermediaries. This process can take two or more days before ownership and funds are fully transferred. Tokenization compresses these stages into near-instant settlement on a single ledger.
Adrian noted that tokenization could also enable different forms of digital money, including tokenized deposits, stablecoins, and central bank reserves, to function together as settlement instruments. It may also improve efficiency by allowing high-quality assets to move quickly as collateral across platforms.
However, the IMF emphasized that these efficiencies come with important risks.
Adrian argued that the delays removed by tokenization in traditional markets also serve as safeguards, giving institutions time to detect and manage emerging problems before they escalate.
Without these buffers, shocks such as technical errors, liquidity crunches, or automated selling could spread through markets much faster, limiting the ability of regulators or institutions to respond.
He warned that liquidity needs could arise instantly, collateral calls could be automated, and failures could cascade at speeds that outpace supervision. Risks previously absorbed by individual balance sheets could become concentrated within the platforms and code that run these systems.
The IMF also pointed to concentration risk, noting that tokenized finance may increasingly cluster around a small number of dominant platforms, where governance failures could quickly become systemic issues.
Cybersecurity was another concern, as shared infrastructure raises the importance of operational resilience and crisis management in highly interconnected systems.
Finally, the IMF said regulation has yet to catch up with the pace of innovation. Existing legal frameworks were designed for slower financial systems and may not clearly define ownership rights, settlement finality, or jurisdiction in tokenized markets.
Without clearer rules, Adrian warned, tokenization could remain fragmented and limited in scope. He also noted that in emerging markets, faster cross-border capital flows could increase volatility, weaken monetary control, and heighten currency substitution risks.
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