IMF Warns Tokenized Markets Amplify Financial Risks

Tokenized financial markets are growing rapidly but remain small compared with traditional markets, with poor interoperability and a lack of widely accepted settlement assets acting as key obstacles to expansion, according to the International Monetary Fund (IMF).

In an analysis published on Thursday, the IMF reported that tokenized repurchase agreements, or repos, dominate tokenized trading activity, averaging $300 billion to $350 billion in daily transaction volume, compared with roughly $13 trillion traded daily in the broader United States repo market. Beyond repos and stablecoins, outstanding tokenized asset value remains concentrated in credit products and money market funds. Tokenized real-world assets (RWAs) reached approximately $65 billion in outstanding value as of July, a small fraction of the roughly $300 trillion in global capital-market assets. Tokenized credit accounted for $30.4 billion, followed by money market funds at $17.5 billion, while tokenized equities represented about $2.3 billion.

Liquidity Gaps and Volatility

Despite their limited scale, tokenized equities are attracting investors seeking around-the-clock trading and fractional ownership. The IMF found that more than half of tokenized equity trading occurred outside regular United States market hours, while roughly 80% of trades involved less than one share. Furthermore, overnight price movements in tokenized equities appeared in traditional stock prices shortly after markets opened, suggesting tokenized markets provide useful price signals outside regular hours.

However, the global financial institution noted that tokenized equities were significantly less liquid and exhibited roughly 1.5 times the realized volatility of their traditional counterparts. The IMF warned that as tokenized markets grow, greater interconnectedness and leverage could amplify traditional financial risks, including fire sales, liquidity runs, and contagion.

Regulatory Calls and Prior Warnings

The IMF called for clearer legal and regulatory frameworks, greater interoperability between tokenized and traditional financial systems, and safeguards to address emerging vulnerabilities as adoption expands. For now, the report noted that systemic risks remain limited because adoption is still relatively small. European regulators, including the European Securities and Markets Authority (ESMA), have raised similar concerns regarding growing links between crypto and traditional finance.

Key facts

• Tokenized real-world assets reached approximately $65 billion in outstanding value as of July.
• Tokenized repo transaction volume averages $300 billion to $350 billion daily.
• Tokenized equities exhibited roughly 1.5 times the realized volatility of traditional counterparts.
• Tokenized credit accounted for $30.4 billion and money market funds represented $17.5 billion.