But a recent report by the International Monetary Fund (IMF) warns that tokenization might make it too difficult for regulators to deal with a financial crisis.
“From the financial stability perspective, tokenization presents a familiar trade-off in a new form. Atomic settlement and enhanced transparency reduce some traditional risks, but speed and automation introduce new vulnerabilities,” wrote Tobias Adrian, the IMF economist who authored the report.
“Stress events are likely to unfold faster, leaving less time for discretionary intervention.
“Therefore, ensuring stability requires that tokenized asset management remains anchored in safe settlement assets, legally recognized finality, and robust governance arrangements.”
The report noted some of the advantages of tokenization, such as reducing settlement risk and collateral requirements. And by integrating compliance rules into the infrastructure, it can reduce operational costs and lead to greater transparency.
“However, these benefits come at the cost of increased concentration,” Adrian added. “A single shared ledger can not only replace dozens of bilateral links, but it also becomes a critical node whose failure could disrupt the entire market.”
The report comes as two pillars of Wall Street, the New York Stock Exchange (NYSE) and Nasdaq, are both embarking on tokenization projects.
Nasdaq has been granted permission from U.S. regulators to allow some securities to trade in tokenized form, and recently teamed up with digital assets trading platform Talos to develop a solution for managing tokenized collateral.
“The partnership addresses structural barriers that have prevented widespread adoption of tokenized collateral in institutional markets, including the challenge of integrating digital assets into existing risk management and collateral workflows,” the companies said in a news release.
And in January, the NYSE announced that it was creating a venue for round-the-clock tokenized stock trading.
“This reflects an evolution of NYSE’s trading capabilities which went from trading floor, to electronic order-book, to blockchain,” Michael Blaugrund, vice president of strategic initiatives at NYSE parent Intercontinental Exchange, said in an interview with Bloomberg News.
“It allows for new types of investor accessibility, and will create new opportunities for retail to participate in the stablecoin-funded markets that have attracted their attention.”
The NYSE in March announced it was working with Securitize to build its tokenized securities trading platform. The exchange named Securitize the first digital transfer agent eligible to mint blockchain-native securities for corporate or exchange-traded fund issuers on the platform
