IMF flags tokenisation risks to global financial stability

In a recent staff note, the International Monetary Fund warned tokenising traditional assets could create new risks to global financial stability. The note highlighted concerns about liquidity mismatches, operational vulnerabilities and gaps in regulation.

Tokenisation converts ownership rights in assets such as bonds, equities and real estate into digital tokens recorded on distributed ledgers. The process can split assets into fractional tokens and enable trading on blockchain-based platforms, which can speed settlement and reduce entry costs for investors.

The staff note warned those features may mask liquidity risks: high on-chain activity can coexist with underlying assets that are hard to sell quickly, raising the potential for fire sales and sharp price moves. Short-term on-chain funding or leverage could unwind rapidly, triggering runs on token platforms or associated stablecoins and creating losses for traditional firms with exposure.

The IMF identified operational and technology vulnerabilities including flaws in smart contracts, cyberattacks and concentrated custody providers that could interrupt trading or expose investors to theft. Legal uncertainty over ownership rights, settlement finality and insolvency treatment for tokenised assets can complicate recovery and increase counterparty risk. Cross-border activity and differing national rules may complicate oversight and crisis response.

The note recommended authorities apply existing regulatory frameworks to tokenised assets where suitable and close gaps where rules do not fit new structures. It called for clearer legal frameworks for property rights and settlement finality, stronger disclosure rules for issuers and platforms, licensing and prudential standards for intermediaries, and tighter anti-money-laundering controls. Supervisors should monitor links between token markets and banks, asset managers and payment systems and develop macroprudential tools and stress tests that reflect token-specific dynamics.

The fund noted potential benefits such as reduced settlement times and wider investor access through fractionalisation but warned those benefits do not remove systemic risk if governance, transparency and resilience are weak. It urged cross-border cooperation, limits on leverage and contingency planning for runs on crypto-linked funding, including stablecoins used in token trading.

The IMF urged ongoing data collection and public reporting on exposures, counterparty links and liquidity conditions so supervisors can detect vulnerabilities early.