Tokenization May Increase Market Shocks

• The IMF highlights key benefits of the tokenization market to crypto users.
• The tokenization sector is expanding, with BlackRock as a key contributor.

The International Monetary Fund (IMF) has warned that tokenization may increase market shocks. IMF, therefore, recommends the implementation of specific government policies to enable tokenization to deliver on its promise. IMF explained in a recent video on X the role of tokenization in the financial markets. 

The organization noted that tokenization can make financial markets faster and cheaper. It frames the technology as the next step in the evolution of money. The IMF explained that tokenization cuts down the long chain of intermediaries in traditional finance transactions. This makes it faster and cheaper for individuals to buy, own, and sell assets. Researchers who have recently studied tokenized markets have found significant cost savings. 

While the tokenization promise is visible in the numbers, the IMF noted that efficiencies from new technologies often come with new risks. It pointed out that automated trading has already led to sudden market shocks known as flash crashes.  They cautioned that tokenized markets can be more volatile than traditional venues due to their instant execution. Also, tokenization allows chains of programs to be written on top of each other.

The IMF emphasized that these could interact adversely in a crisis, like falling dominoes. Another risk is that many new markets could emerge. If their tokens are not interoperable, markets could fragment and fail to deliver faster and cheaper trading. 

The IMF, therefore, recommends the intervention of government policies, so tokenization can deliver on its promise while limiting the risks. It added that governments do not like to stay on the sidelines during important money events. So if history is any guide, the IMF sees governments taking a more active role in the future of tokenization.

For instance, governments are already pushing the establishment of a national digital currency. As discussed earlier, Japan Post Bank announced plans to launch DCJPY in 2026. The goal is to modernize savings and attract younger users through digital currency innovation. Likewise, ECB President Christine Lagarde has emphasized that the bank is committed to developing the digital euro.

Tokenization Gaining Global Recognition

Over the years, tokenized markets have grown into a multibillion-dollar industry. Key players of the sector include asset manager BlackRock, which launched the BUIDL fund in 2024.

The fund is becoming the world’s largest tokenized Treasury fund, surpassing Franklin Templeton’s Franklin OnChain US Government Money Fund. As noted in our earlier post, the BUIDL fund exceeded $1 billion in assets in March, highlighting the growing institutional interest in asset tokenization.

BUIDL also became the first tokenized asset accepted as collateral for OTC and institutional trades on the Binance exchange. As tokenization continues to grow, the IMF has shown support for the sector. The organization has spent years probing the tokenization market structure and digital money. Summarily, the IMF video posits that while tokenization may deliver benefits, those markets will grow under close regulatory scrutiny.