The International Monetary Fund (IMF) has underlined both the significant potential and the risks associated with the rapid growth of asset tokenization in global financial markets. In its latest analysis, the IMF reported that while blockchain-based tokenization offers faster settlements, fractional ownership, and after-hours trading, the sector remains underregulated compared to traditional finance.
IMF calls for more regulation and market integration
The IMF urged policymakers to introduce stronger regulations and enhance connectivity among financial platforms to support the safe adoption of tokenized assets. The organization identified insufficient regulatory oversight, legal uncertainty, and limited interoperability as hurdles that could impede broader acceptance of tokenization.
According to the IMF, the effectiveness of tokenization in finance depends on integrating blockchain technologies with existing systems while establishing a robust legal framework and ensuring investor protection. The fund highlighted that tokenized assets are likely to play an increasingly important role, but this growth should be accompanied by coordinated efforts from regulators.
The IMF emphasized that, beyond the excitement surrounding blockchain technology, clear legal frameworks and enhanced protection for investors are essential to mitigate financial stability risks as tokenization becomes more widespread.
Tokenized RWA market remains small but shows strong potential
The tokenized real-world asset (RWA) market has reached $65 billion as of July, a fraction of the $300 trillion in total capital market assets worldwide. Tokenized credit products account for $30.4 billion, while tokenized money market funds are valued at $17.5 billion and tokenized equities at $2.3 billion.
Tokenized repurchase agreements, or repos, represent a substantial portion of trading in these markets, with daily volumes between $300 billion and $350 billion. In comparison, the US repo market processes about $13 trillion in daily transactions, highlighting ample room for further expansion of tokenization. The IMF suggested that this growth will depend on integrating blockchain into the broader financial landscape.
Current trends also illustrate the growing influence of meme token markets alongside traditional tokenized products. Technical market analysis indicates that tracking not just price action but also investor behavior remains critical. In the meme token sector, an internet trend can rapidly transform into millions in trading activity. For instance, Fomo App data shows a $99 trade in “Niu Lai” turning into approximately $370,000, exemplifying the speed and scale of market moves. Platforms like Fomo App combine token discovery, social features, investor rankings, and trade notifications to facilitate an increasingly dynamic trading environment.
Advantages and risks of tokenized equities
Tokenized equities are attracting investors due to possibilities for 24/7 trading and fractional ownership. The IMF observed that over half of tokenized equity trading occurs outside standard US market hours, and approximately 80% of trades involve less than one full share. This points to investor demand for greater flexibility and accessibility in market participation.
Notably, overnight price movements in tokenized equities tend to align closely with price actions in underlying stocks after US markets open, reflecting the potential for immediate price discovery. However, the IMF identified that tokenized stocks exhibit lower liquidity and around 1.5 times greater price volatility compared to conventional stocks.
Higher realized volatility and limited liquidity may translate into increased risks for investors, especially in fast-changing or thinly traded markets, underscoring the importance of effective risk management.
Illiquidity in tokenized assets does not necessarily prevent trading, but it increases vulnerability to pronounced price swings and makes effective risk controls even more crucial.
Financial stability concerns and regulatory developments
The IMF warned that closer ties between tokenized and conventional financial markets could raise the risk of financial contagion in cases of distress. Factors such as forced liquidation, liquidity withdrawals, and leveraged activity have the potential to amplify market shocks if not adequately managed.
Accelerated settlement through blockchain can reduce some transaction risks, but it may also shorten the timeframe available for institutions to respond to market disruptions, potentially intensifying episodes of instability.
Currently, the IMF assesses systemic risks as limited due to the relatively modest size of tokenized markets. However, as adoption grows, these risks are expected to rise. In previous reports, the IMF and European Securities and Markets Authority have each flagged the potential for increased volatility, liquidity stress, and spillovers into traditional markets as a result of greater integration.
In response to these challenges, the US Securities and Exchange Commission introduced a temporary Innovation Exemption permitting certain tokenized stocks to trade on selected on-chain platforms, signaling a measured approach to regulation of the expanding tokenized sector.
The IMF’s report maintained that the future of tokenization will depend as much on legal clarity, liquidity, and investor protection as on technological advancement itself.
