The International Monetary Fund said in an article published on Oct. 8 that tokenization could bring faster transactions, lower costs, broader market access, and financial markets that operate around the clock. Even so, it said the market is still small and highly fragmented.
The IMF said tokenization will only realize that potential if several conditions are met: clear legal and regulatory treatment, interoperability across platforms, safe settlement assets, and safeguards for financial stability.
Market size remains small relative to traditional finance
According to IMF data, tokenized activity is currently concentrated in the repurchase agreement, or repo, market, with daily trading volume of about $300 billion to $350 billion. Another roughly $65 billion in daily trading comes from other tokenized assets, including credit, money market funds, and equities.
For comparison, the traditional U.S. repo market handles about $13 trillion in daily trading, while global capital market assets total about $300 trillion. On that basis, the IMF said tokenization still accounts for only a small share of the broader financial system.
Issuance and trading are spread across jurisdictions and systems
The IMF said issuance of tokenized assets is concentrated mainly in the United States and a small number of major offshore jurisdictions. Trading, however, is dispersed across different platforms, blockchain networks, and settlement systems.
It listed several constraints on further growth. Investors need clarity on the legal rights represented by tokenized assets. Regulators need to spell out how existing rules apply to new ledger systems and market functions. Platforms need interoperability instead of separate liquidity pools cut off from one another. Settlement also depends on a safe and widely accepted form of money.
After-hours trading and fractional ownership are already visible
In terms of market use, the IMF said tokenization has already shown features that are less common in traditional financial markets. More than half of tokenized asset trading takes place outside traditional market hours, pointing to demand for 24/7 trading.
In the tokenized equity trades reviewed by the IMF, about 80% of trading volume was for less than one share. The institution said that shows fractional ownership is already being used on a broad basis.
Liquidity, volatility, and stability risks remain in focus
The IMF also said the market still faces low liquidity and relatively high volatility. Fragmentation across multiple networks and trading venues, together with the lack of a unified interoperability framework and settlement asset, limits price discovery and liquidity formation.
It warned that as tokenized markets grow, efficiency gains could come with new financial stability risks. Those include concentrated sell-offs, liquidity runs, and contagion linked to stronger market interconnectedness and higher leverage.
The IMF added that step-by-step transactions, delayed settlement, and reconciliation processes in traditional finance raise costs and frictions, but they also provide a degree of risk buffering, liquidity management, and operational safety.
IMF calls for technology-neutral oversight
The IMF said countries should adopt a technology-neutral regulatory approach, define the legal rights tied to tokenized assets, and make sure the same economic activity is regulated consistently regardless of the technology used. It also called for stronger interoperability between tokenization platforms and the traditional financial system.
As the market expands, regulators will also need to keep monitoring emerging risks tied to interconnectedness, leverage, and liquidity, the IMF said.