Tokenization—the digitization of real-world assets on blockchain networks—is poised to reshape both traditional finance and crypto markets, but it may also introduce risks that regulators are not yet ready to handle, the International Monetary Fund (IMF) said in a recent report.

The IMF emphasizes that tokenization represents a structural shift rather than a marginal improvement. By placing assets such as money, bonds, and funds onto shared ledgers, transactions can be executed and settled almost instantly, reducing reliance on intermediaries and eliminating delays common in current financial systems.

A defining feature of this model is “atomic settlement,” where transactions are finalized in real time. While this reduces counterparty risk, it also requires institutions to actively manage liquidity on a continuous basis, fundamentally altering how markets function.

The report warns that this speed could heighten systemic risks during periods of stress. Rapid, automated processes may cause disruptions to escalate quickly, leaving little time for manual intervention. To safeguard stability, the IMF stresses the need for reliable settlement assets, legally recognized finality, and strong governance frameworks.

Stablecoins are identified as a key component in bridging traditional finance with tokenized systems. As fiat-pegged digital assets, they could serve as primary settlement tools across blockchain-based platforms. However, their resilience depends on the quality of their reserves and redemption mechanisms, leaving them vulnerable to potential runs in times of market stress.

The IMF also highlights the risk of increased volatility. Automated smart contracts that execute margin calls or liquidations could accelerate market downturns, intensifying price swings—an effect already observed in crypto markets.

Another concern is the cross-border nature of tokenized assets. Their ability to move instantly across jurisdictions complicates regulatory oversight and raises risks such as capital flight and currency substitution, particularly in emerging markets.

To address these challenges, the IMF calls for clearer legal standards and stronger global coordination. Without these measures, tokenization could fragment financial systems rather than improve efficiency.

Even so, adoption continues to grow. Data from DeFiLlama shows that tokenized real-world assets have exceeded $23.2 billion. Excluding stablecoins, most of this value is concentrated in tokenized gold and money market funds, reflecting increasing demand for blockchain-based representations of traditional assets.