The International Monetary Fund said tokenization could remove friction and raise financial transparency, but warned the technology could also pose challenges affecting financial stability.
“The net effect of tokenization on financial stability is uncertain” – IMF he said in Thursday’s 23-page report stating that “nuclear settlement and increased transparency reduce some traditional risks, but speed and automation introduce new ones.”
Over $27.6 billion in assets, net of stablecoins, are currently tokenized on the network, data from RWA.xyz shows. Boston Consulting Group estimated in 2022 that the tokenization market could grow to $16 trillion by 2030, while McKinsey & Co in 2024 predicted a more conservative $2 trillion over the same period.
The IMF acknowledged that tokenization expands the way securities and other financial products are issued, traded, settled and managed, but said it shifts risk from the banking system to shared ledgers and astute contract code.
“Stress events in tokenized markets are likely to occur more quickly than in traditional systems, leaving less time for discretionary intervention.”
The agency also said tokenization offers opportunities in emerging markets such as faster cross-border payments and financial inclusion, but added that it “increases the risk of volatile capital flows, rapid currency substitution and the erosion of monetary sovereignty.”
Wall Street is in favor of tokenization
Blockchain tokenization has been pushed by Wall Street leaders such as BlackRock CEO Larry Fink, who is among those eager to tokenize everything from stocks and bonds to money market funds and real estate.
The largest RWA tokenization platform by total value locked is Securitize – the tokenization platform behind the BlackRock USD Institutional Digital Liquidity Fund – worth $3.38 billion. According to to CryptoDep, citing data from April 1.
Tether Gold and Ondo Finance are close behind with $3.35 billion and $3.21 billion respectively.
The parent company of the Modern York Stock Exchange, Intercontinental Exchange, is also taking action, announcing in January that it would launch a tokenization platform enabling 24/7 trading and instant settlement of exchange-traded stocks and funds using a blockchain post-trade system.
Related: The value of tokenization is determined by liquidity, not novelty
However, the IMF said legal challenges pose another hurdle, saying that without legal clarity on ownership records and settlement finality, tokenized markets could become “fragmented and peripheral.”
The crypto industry is developing solutions to solve this problem, such as the ERC-3643 permissioned token standard of the Ethereum ecosystem, which ensures that only certain investors have access to tokenized products.
Coinbase Asset Management launched tokenized shares for the Coinbase Bitcoin Yield Fund on Ethereum’s Layer 2 on March 20, with the aid of financial services company Apex Group, which has implemented the ERC-3643 standard to ensure token holder identity and eligibility are checked for compliance.
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