The International Monetary Fund (IMF) has analyzed the impact of financial asset tokenization, noting that while it enhances market efficiency through reduced transaction costs and 24/7 trading, it may also increase market volatility and liquidity risks. The analysis revealed that the volatility of the U.S. tokenized stock market is 1.5 times higher than that of traditional stock markets.
On October 8, the Bank of Korea and the IMF jointly held a presentation titled 'The Expansion of Tokenization: New Efficiencies and Vulnerabilities,' during which the IMF released a separate chapter from its Global Financial Stability Report (GFSR) detailing these findings.
Tokenization refers to the technology that records and manages financial assets or liabilities on a programmable distributed ledger. It integrates functions such as asset issuance, transfer, management, and settlement, which were previously performed by multiple intermediaries, into a single digital infrastructure. This integration aims to reduce transaction costs while increasing the speed and transparency of settlements.
The tokenization market is rapidly growing, with the market size for tokenized real-world assets (RWA) estimated at approximately $65 billion as of July this year. Bonds and money market funds (MMFs) account for about $48 billion of this total, while stocks represent around $2.3 billion. However, this figure does not include closed tokenization markets, repurchase agreements (RPs), or stablecoins.
The IMF's empirical analysis of the U.S. tokenized stock market confirmed positive effects. More than 50% of total trading volume occurred outside regular trading hours, and about 80% of trades were executed in fractional shares of less than one full share. This development alleviates the time constraints of traditional stock markets and enhances accessibility for individual investors.
Price discovery mechanisms were also observed. Over 87% of price changes in the tokenized stock market immediately following regular trading hours were reflected in subsequent prices in the traditional stock market. This indicates that the tokenized market responds to similar information as existing financial markets, facilitating appropriate price determination.
However, vulnerabilities in terms of financial stability were also highlighted. The liquidity of the tokenized stock market was found to be lower than that of traditional markets, with price volatility approximately 1.5 times higher. Notably, liquidity decline was more pronounced in decentralized exchanges compared to centralized ones within the tokenized market.
The IMF cautioned that the spread of tokenization could amplify existing financial market risks through new channels. Increased movement and reuse of collateral via tokenized RPs and MMFs could lead to greater leverage and heightened asset sale pressures during financial market instability.
Automated collateral management and liquidation systems, along with 24/7 trading, were identified as having dual aspects. While they enhance trading efficiency under normal conditions, they can also lead to rapid margin calls and forced liquidations during market shocks, increasing liquidity risks. The interconnectedness of various platforms and financial products raises the possibility of specific market shocks quickly transferring to other markets.
The IMF emphasized the need to eliminate constraints on tokenization to enhance technological neutrality. It identified four main obstacles: legal uncertainties, regulatory ambiguities, lack of interoperability between platforms, and the absence of secure payment methods.
In particular, the IMF stressed the necessity of using safe and reliable currencies for the settlement of tokenized securities. It stated, 'It is advisable to use central bank money for systemically important securities settlement,' while acknowledging that privately issued deposit tokens or stablecoins could be utilized, albeit with associated credit, liquidity risks, and contagion risks within financial markets.
Currently, the IMF assesses that the systemic risks associated with tokenization are limited. However, it anticipates that if tokenization becomes widespread, the stability of financial market infrastructure, legal foundations, liquidity management, and risk control will emerge as key challenges for financial stability.
Consequently, the IMF recommends that policymakers support the efficient development of the tokenization market while establishing safety measures for financial stability. It also suggests enhancing monitoring and stress testing of financial institutions' intraday and after-hours liquidity to respond to 24/7 trading and automated liquidation, as well as reviewing the effectiveness of existing market safety mechanisms such as circuit breakers.
* This article has been translated by AI.
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