Finance08 October, 20262 min read
IMF Warns Tokenized Markets Could Amplify Liquidity, Interconnectedness, and Leverage Risks
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Tokenization improves efficiency in trading and settlement but expands systemic risks Tokenized equities are less liquid and about 1.5x more volatile than traditional equivalents
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IMF flags tokenization risks
The International Monetary Fund warned that financial asset tokenization could enhance market efficiency while amplifying vulnerabilities such as liquidity, interconnectedness, and leverage. The IMF said its analysis found that tokenized equity markets showed lower liquidity and higher volatility than traditional markets, with volatility measured at 1.5 times that of traditional markets.
The IMF also pointed to weaker liquidity on decentralized exchanges compared with centralized exchanges, and it warned that tokenized markets could amplify risks as adoption expands. The IMF framed its findings around a technology-neutral approach, including resolving legal certainty and regulatory clarity constraints and addressing interoperability and available settlement assets.
Kwon links speed to brakes
Bank of Korea Deputy Governor Kwon Min-soo compared tokenization to Formula 1 racing, saying that reaching the finish line faster requires safety mechanisms and policy frameworks as well as efficiency. Kwon told the event that "The same applies to tokenization," and he said building faster infrastructure is important but equally critical is establishing prudential safeguards and safety mechanisms.
Kwon also said the IMF's dedicated coverage of tokenization in the October Global Financial Stability Report shows it has reached a stage where it must be seriously considered from a financial system stability perspective. The Bank of Korea planned to launch Phase 2 of Project Hangang in the fourth quarter of this year and pursue a government bond tokenization pilot program next year.
Regulators urged to oversee
The IMF released its report titled "The Expansion of Tokenization: New Efficiencies and Vulnerabilities" at a joint event with the Bank of Korea, and it placed the analysis inside a standalone chapter in the October Global Financial Stability Report. The IMF urged authorities to ease constraints across legal certainty, regulatory clarity, interoperability, and available settlement assets, while applying the principle of "same activity, same risk, same regulation" for tokenized securities.
“The Expansion of Tokenization: New Efficiencies and Vulnerabilities.”
The IMF warned that as tokenized markets grow, greater interconnectedness and leverage could amplify traditional financial risks, including fire sales, liquidity runs and contagion. The IMF also called for safeguards such as circuit breakers and liquidity safeguards tailored to tokenized trading, and it said systemic risks remain limited because adoption is still relatively small.