IMF Flags $300T Tokenization Gap, Warns 24/7 Markets Could Amplify Market Risks

Key Takeaways:

• About $300 billion – $350 billion are traded in tokenized repos every day, which remains significantly smaller than the traditional markets.
• Half of the tokenized equity trading takes place outside normal trading hours.
• Weak liquidity, fragmentation and leverage might pose financial risk, warn IMF.

While tokenized finance is developing rapidly, it’s still relatively small, fragmented and not as liquid as traditional finance, the International Monetary Fund reported.

The IMF believes tokenization has the potential to overhaul the trading and settlement process, and wider adoption will require improved legal structures, tokenization interoperability and reliable settlement assets.

Tokenized Markets Remain Tiny Next to $300 Trillion Finance

Today, the biggest repurposed marketplace consists of repos. The daily volume in tokenized repos is about $300 billion to $350 billion. That is a significant amount, but is a smaller portion of the U.S. repo industry, which deals in approximately $13 trillion in transactions daily.

Credit products, money market funds and equities form other tokenized assets, with a combined value of approximately USD 65 billion. This is just a small portion of global capital markets, which hold total assets of some $300 trillion.

The IMF named four significant factors that are impeding tokenization: Legal certainty, Regulatory clarity, Interoperability, Settlement assets that are widely accepted.

Read More: IMF Warns Tokenization Could Reshape Global Finance as New Blockchain Risks Replace Banks

80% of Tokenized Equity Trades Are Smaller Than One Share

This is on a small scale, but the features of this market are very popular among investors due to their availability in other traditional markets which they are not always able to. But over half of tokenized equity activity studied by the IMF actually happened outside regular trading hours, indicating clear demand for trading that’s 24/7.

Fractional ownership is also popular. Approximately 80% of tokenized equity trading was for amounts smaller than 1 token, which enabled investors to gain exposure while investing in smaller amounts of money.

The IMF also determined that changes in tokenized stocks prices had an impact on traditional ones after Monday’s markets opened.

Thin Liquidity Could Increase Tokenized Market Volatility

There are also big consequences associated with the efficiencies. The trading volume is lower, and the trading price is fluctuating more in the tokenized markets than in its traditional markets.

Duplication of data across multiple networks and platforms may limit price discovery, separate the liquidity, and lead to price spreads between comparable data. The IMF also cautioned that the vulnerabilities may intensify as markets get tokenized.

Read More: OKX Eyes 63 U.S. Stocks in Major Tokenized Trading Expansion

Faster Settlement Could Also Spread Financial Stress

Tokenized infrastructure can condense multiple processes typically stalled across multiple stages, from trading through settlement and reconciliation.

It will decrease costs and increase sales turnaround, but it can also eliminate buffers that exist in traditional financial systems in times of market stress. IMF warns that increased interdependence and leverage could offer new opportunities for fire sales, liquidity withdrawal and financial contagion.

The institution therefore supports technology-neutral regulation, clearer legal rights for token holders and stronger interoperability between tokenized platforms and traditional financial systems.

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