IMF Warns $65 Billion Tokenization Market Has a Dangerous Catch

IMF Finds $65 Billion in Tokenized Assets

The International Monetary Fund (IMF) is raising concerns about the financial stability implications of tokenization in Chapter 3 of its October 2026 Global Financial Stability Report, titled “Scaling Tokenization: New Efficiencies, New Vulnerabilities.” The report examines how blockchain-based financial instruments could reshape traditional markets by combining issuance, trading, clearing, settlement and servicing on programmable ledgers.

The numbers tell an interesting story. By July 31, tokenized real-world assets (RWAs), excluding repurchase agreements and stablecoins, had reached approximately $65.1 billion. Tokenized credit accounted for $30.4 billion, while money market funds represented another $17.5 billion.

Tokenized equities remained comparatively tiny at $2.3 billion. Meanwhile, tokenized repurchase agreements, or repos, recorded average daily transaction volumes of $303 billion, reflecting growing institutional interest in moving collateral more efficiently.

The paper states:

“Tokenized repo can add greater flexibility and precision to the timing of the transaction, potentially supporting liquidity management.”

Faster Settlement Comes With a Catch

Tokenization promises something conventional financial infrastructure has spent decades pursuing. Faster transactions, fewer intermediaries, automated compliance and markets that never close. The IMF found that more than half of tokenized equity trading occurred outside regular U.S. market hours. Roughly 80% of transactions involved less than one share, suggesting considerable demand for fractional ownership.

But there’s a catch. Traditional financial systems contain delays that give institutions time to reconcile transactions, secure liquidity and manage unexpected disruptions. Blockchain-based settlement can eliminate those breathing spaces. The IMF warns that programmable collateral, automated margin calls and continuous trading could accelerate forced liquidations when markets encounter trouble.

Collateral reused across interconnected platforms could also support greater leverage, allowing financial stress to travel between institutions and markets considerably faster. Smart contracts, meanwhile, introduce dependencies on software, infrastructure providers and external data feeds.

The IMF paper cautions:

“Composability can improve coordination and capital efficiency, yet it also propagates contagion and leverage across interconnected applications and expands the operational attack surface.”

Four Obstacles Stand Between Tokenization and Wall Street

Despite growing institutional experimentation, tokenized markets remain fragmented, relatively illiquid and vulnerable to operational disruptions. The International Monetary Fund paper identifies four obstacles preventing broader adoption. They include legal certainty, regulatory clarity, interoperability between blockchain networks and reliable settlement assets.

Central bank money offers a potentially safer settlement foundation, while private stablecoins and tokenized deposits introduce additional credit, liquidity and concentration risks. The fund recommends technology-neutral regulation, stronger oversight, circuit breakers and safeguards against destabilizing automated liquidations.

For now, the IMF considers systemic risks limited because tokenized markets remain relatively small. Yet the report presents a curious contradiction. Tokenization’s greatest commercial attraction, removing friction from financial transactions, could also eliminate mechanisms that help markets withstand financial shocks.

The faster Wall Street becomes, the less time it may have to react when something goes wrong. “Overall, by reducing the friction, buffers, and intermediation arrangements that traditionally help absorb shocks, these features can also alter how vulnerabilities accumulate and shocks are transmitted across markets and infrastructures,” the IMF paper, Chapter 3, states.