IMF Warns Tokenized Markets May Escalate Financial Risks

Tokenization is moving quickly from concept to early deployment, but a new International Monetary Fund (IMF) analysis argues that legal uncertainty and financial-stability risks could still limit how far tokenized markets can expand.

In a blog post released Thursday, the IMF said tokenized financial markets are growing rapidly from a small base. The report also highlighted persistent structural barriers—especially poor interoperability and a lack of widely accepted settlement assets—saying these issues have kept tokenization’s current footprint far below the scale of traditional capital markets. IMF analysis

Key takeaways

• Tokenized trading remains dwarfed by traditional markets: tokenized repos average about $300B–$350B daily versus roughly $13T in the broader US repo market.
• Outside stablecoins, tokenized value is concentrated in credit products and money market funds, while tokenized real-world assets total around $65B as of July—still a small share of global capital-market assets.
• Tokenized equities may offer useful “after-hours” price signals, but the IMF reports they are less liquid and show higher realized volatility than traditional equities.
• As tokenized markets connect more deeply with traditional finance, leverage and interdependencies could amplify systemic risks—even if risks are currently limited due to small adoption.
• The IMF urges clearer legal and regulatory frameworks, better interoperability, and safeguards to prevent vulnerabilities from scaling with adoption.

Tokenization’s scale remains small—yet its activity is telling

A central question for investors and market participants is whether tokenized markets can grow beyond niche activity. The IMF frames tokenization as a potentially transformative shift—promising more efficient trading and settlement—but cautions that the present ecosystem is still incomplete.

According to the IMF, tokenized repurchase agreements (repos) dominate tokenized trading activity. Daily transaction volume in tokenized repos averages $300 billion to $350 billion. By comparison, the broader US repo market trades around $13 trillion per day. That contrast underscores the gap between tokenization’s momentum and the overall size of conventional market infrastructure.

When the IMF looked beyond repos and stablecoins, it found tokenized asset value is concentrated in areas closely linked to short-term cash management and credit exposure. Tokenized real-world assets (RWAs) reached approximately $65 billion in outstanding value as of July. The IMF described this as only a small fraction of roughly $300 trillion in global capital-market assets.

Within that $65 billion, the IMF cited the breakdown as follows: tokenized credit accounted for $30.4 billion, money market funds totaled $17.5 billion, and tokenized equities were about $2.3 billion. The implication is that—so far—tokenization has been adopted most where existing instruments already fit well with programmable settlement and predictable cashflows.

Tokenized equities draw interest for 24/7 trading—liquidity and volatility remain concerns

While the tokenized equities segment is small in absolute terms, the IMF said it is drawing attention because it can support around-the-clock trading and fractional ownership.

In the report, the IMF found that more than half of tokenized equity trading took place outside regular US market hours. The analysis also indicated that roughly 80% of trades involved less than one share. Those figures suggest the market has attracted participants looking for flexibility in execution and smaller position sizes—features that traditional exchange hours and share-based trading conventions may not always accommodate as easily.

Crucially, the IMF also reported that overnight price movements in tokenized equities appeared in traditional stock prices shortly after markets reopened. That pattern, according to the IMF, indicates tokenized venues may generate signals beyond regular trading windows. For traders and market structure analysts, this raises practical questions about how reference pricing and order flow might evolve if tokenized trading becomes more widespread.

However, the IMF’s tone is cautious on execution quality. The analysis said tokenized equities were significantly less liquid and had realized volatility about 1.5 times that of their traditional counterparts. The IMF warned that if tokenized markets keep expanding, greater interconnectedness and the potential for leverage could magnify traditional financial risks—such as fire sales, liquidity runs, and contagion.

At present, the IMF noted that systemic risks appear limited, largely because adoption is still relatively small. But it warned that the risk profile could change quickly as more participants, products, and trading relationships move onto tokenized rails.

Why regulators are focused on interoperability and legal clarity

The IMF argued that technology alone will not determine tokenization’s trajectory. Even if settlement automation is technically feasible, the report suggests market growth depends on whether participants can rely on consistent rules, compatible systems, and secure settlement assets.

In this IMF analysis, two recurring friction points stand out: poor interoperability between tokenized and traditional systems and a lack of widely accepted settlement assets. Without addressing these, the IMF implied tokenization may remain fragmented—more useful within isolated ecosystems than as a broadly integrated market infrastructure.

The IMF called for clearer legal and regulatory frameworks, improved interoperability, and safeguards aimed at emerging vulnerabilities. The goal is not just to enable growth, but to prevent gaps in oversight or infrastructure from turning into instability during stress events.

This is not the IMF’s first foray into tokenization risk. In November 2025, the institution warned that automated trading and interconnected smart contracts could amplify market volatility and flash-crash dynamics. In April, it cautioned that faster settlement might accelerate financial stress, and earlier it also highlighted systemic risks stemming from fragmented platforms and insufficient regulatory coordination.

European regulators echo concerns about contagion through tokenized links

The IMF’s concerns align with regulatory scrutiny beyond Washington. The report also referenced warnings from the European Securities and Markets Authority (ESMA), noting that growing links between crypto and traditional finance—including through tokenized equities—could increase the risk of financial shocks spreading across markets.

That regulatory stance reflects a broader tension: tokenization can make settlement faster and trading more continuous, but those same characteristics can change how stress propagates when liquidity thins or leverage builds. If tokenized markets become closely connected to conventional trading venues, regulators will likely focus on how losses, margin calls, and liquidity demands flow across platforms during downturns.

The IMF authors summarized the issue by emphasizing that tokenization’s future hinges less on technological possibility than on policy decisions that ensure market depth, trust, and robust safeguards. IMF analysis

For readers watching tokenization closely, the key question is whether the industry can move from isolated growth to standardized, interoperable market plumbing without introducing new fragilities. The IMF’s warning suggests the next phase may be less about launching more tokenized products and more about proving that legal frameworks, settlement assets, and risk controls can keep pace with adoption.