IMF warns tokenization could increase systemic risk

Tobias Adrian, head of capital markets at the International Monetary Fund (IMF), has warned that while tokenization can enhance market efficiency, it could also create a system more vulnerable to shocks. In a blog post, he explained that tokenization makes financial transactions faster and more efficient but may also eliminate the safeguards of the traditional financial system, CoinDesk reported. Adrian cautioned that without these buffers, market shocks, programming errors, or automated sell orders could ripple through the financial markets before regulators have a chance to react. He added that the current global financial regulatory framework is not equipped for the real-time environment created by tokenization, assessing that the technology will likely remain confined to limited areas unless market participants have clear legal definitions regarding asset ownership, settlement finality, and applicable laws.