Tokenization could reshape financial markets by making trading and settlement more efficient, but legal uncertainty and risks to financial stability could stand in the way of broader adoption, according to a Thursday analysis published by the International Monetary Fund (IMF).

Tokenization refers to recording ownership rights in assets — from bonds and credit to money market funds — as digital tokens on shared ledgers. The IMF said tokenized financial markets are expanding rapidly but remain small compared with traditional markets, with poor interoperability and the absence of widely accepted settlement assets among the key obstacles to growth.

The gap between tokenization's potential and its current scale is most visible in trading activity. Repos — short-term collateralized borrowings that provide day-to-day funding across the financial system — are where tokenization has gained the most traction. Tokenized repos dominate the space, averaging $300 billion to $350 billion in daily transaction volume — a fraction of the roughly $13 trillion traded daily in the broader United States repo market, a measure of how early the technology's adoption remains.

Beyond repos and stablecoins, outstanding tokenized asset value is concentrated in credit products and money market funds. Tokenized real-world assets (RWAs) totaled approximately $65 billion in outstanding value as of July, a small slice of the roughly $300 trillion in global capital-market assets. Tokenized credit accounted for $30.4 billion, followed by money market funds at $17.5 billion, while tokenized equities represented about $2.3 billion.

Investors embrace 24/7 trading as risks persist

Despite their limited scale, tokenized equities are drawing investors seeking around-the-clock trading and fractional ownership. The IMF found that more than half of tokenized equity trading took place outside regular US market hours, while roughly 80% of trades involved less than one share.

The fund also observed that overnight price movements in tokenized equities showed up in traditional stock prices shortly after markets opened, suggesting tokenized markets could serve as useful price signals outside regular trading hours.

However, the IMF noted that tokenized equities are significantly less liquid and exhibited roughly 1.5 times the realized volatility of their traditional counterparts. It warned that as tokenized markets grow, greater interconnectedness and leverage could amplify conventional financial risks, including fire sales, liquidity runs and contagion.

The IMF called for clearer legal and regulatory frameworks, greater interoperability between tokenized and traditional financial systems, and safeguards to address emerging vulnerabilities as adoption expands. For now, the report noted that systemic risks remain limited because adoption is still relatively small. How policymakers act on those calls, and whether tokenized platforms manage to interoperate with established market infrastructure, is likely to shape the sector's next phase of growth.

IMF, European regulators raise tokenization concerns

The analysis is not the first time the IMF has flagged concerns about tokenization. In November 2025, it warned that automated trading and interconnected smart contracts could amplify market volatility and flash crashes. In April, it cautioned that faster settlement could accelerate financial stress, while a July analysis highlighted systemic risks stemming from fragmented platforms and insufficient regulatory coordination.

European regulators have voiced similar concerns. Last month, the European Securities and Markets Authority (ESMA) warned that growing links between crypto and traditional finance, including through tokenized equities, could raise the risk of financial shocks spreading across markets.

"Tokenization may yet transform finance, but its future will be determined less by technological possibilities than by policies that ensure market depth, trust, and sound safeguards," the IMF authors concluded in Thursday's blog post.