Key Insights:
- The International Monetary Fund (IMF) acknowledges some of the key benefits of tokenisation, like faster settlement, lower costs, and reduced intermediaries.
- However, it warns that this market could become volatile in the event of cascading smart-contract failures.
- The IMF warned of liquidity fragmentation across incompatible platforms and signaled that governments will likely take a more active role.
As the tokenization wave is catching up fast in the financial world, the International Monetary Fund (IMF) has raised fresh warnings. The global agency has shared its concerns through an explanatory video, released on the X platform. It said that the tokenization market is more volatile than the traditional markets and prone to flash crashes.
IMF Acknowledges the Benefits of Tokenization
In their video, the International Monetary Fund (IMF) dubbed tokenization as the next phase in the evolution of money. They added that the technology can facilitate faster and cheaper transactions for buying, owning, and selling assets by reducing the number of intermediaries involved.
IMF noted that instead of depending on clearinghouses and registrars, a tokenized market can automate these functions through code. As per the agency, researchers examining early tokenized markets have already identified significant cost savings. Furthermore, tokenization’s programmability enables near-instant settlement and more efficient use of collateral.
Governments across the world have already started exploring the merits of tokenization and key opportunities ahead. A recent report suggests that the Philippines could see a $60 billion boost to its economy by 2030 by riding the tokenization wave.
The report finds that although about 14% of Filipinos hold cryptocurrencies, fewer than 5% own traditional financial assets such as stocks, bonds, or mutual funds. This highlights a disconnect between digital adoption and participation in the wider financial system.
It adds that the country’s strong use of digital wallets and crypto could create a “tokenized-first” pathway for bringing more Filipinos into markets for equities, fixed income, and investment funds. Nichel Gaba, founder and CEO of PDAX said:
“The Philippines has a unique advantage: blockchain wallets are already mainstream. We’re not starting from scratch. The infrastructure to deliver tokenized assets to millions of Filipinos already exists in their pockets. Our focus now is to connect that infrastructure to real, regulated financial products.”
Tokenized markets have expanded into a multibillion-dollar sector, with BlackRock’s BUIDL fund emerging as the world’s largest tokenized Treasury product. It recently overtook Franklin Templeton’s Franklin OnChain U.S. Government Money Fund and continued to scale through 2024 and 2025.
The Risks of Tokenization
Despite acknowledging the tokenization wave, the IMF warned that the same efficiencies powering tokenized markets could also bring some well-known risks. The fund noted that automated trading has “already led to sudden market plunges known as flash crashes”. It added that tokenized markets, with near-instant execution, “can be more volatile” than traditional trading venues.
The institution cautioned that during periods of stress, layers of interconnected smart contracts could interact “like falling dominoes.” This could potentially lead to a localized failure and further escalate into a broader systemic shock.
The IMF also pointed to the risk of market fragmentation if multiple tokenized platforms emerge that “don’t speak to each other,” which could erode liquidity and undermine the promise of faster and cheaper markets.
The video further suggested governments may become more directly involved. “Governments have rarely been content to stay on the sidelines during important evolutions of money,” it stated, adding that they are likely to take “a more active role in the future of tokenization.”
Bhushan is a FinTech enthusiast and holds a good flair for understanding financial markets. His interest in economics and finance draws his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In his free time, he reads thriller fiction novels and sometimes explores his culinary skills.
