Tokenized finance is developing rapidly, but it remains relatively small, fragmented, and less liquid than traditional finance, according to the International Monetary Fund (IMF) in a recent blog post. The institution believes tokenization has the potential to overhaul the trading and settlement process, but says wider adoption will depend on improved legal structures, tokenization interoperability, and reliable settlement assets that are widely accepted by market participants. Its analysis covered tokenized repos, credit products, money market funds, and equities. For readers gauging how far the technology has traveled, the analysis doubles as a checklist of what tokenized finance still needs before it can operate at the scale of traditional markets.

Tokenized Markets Remain Tiny Next to $300 Trillion in Traditional Finance

Repurchase agreements, or repos — short-term secured transactions in which one party sells securities and agrees to buy them back — currently make up the largest tokenized marketplace. Daily volume in tokenized repos stands at roughly $300 billion to $350 billion — a substantial figure in its own right, yet only a small portion of the U.S. repo industry, which handles approximately $13 trillion in transactions on a daily basis.

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

The IMF named four significant factors that are impeding the growth of tokenization: legal certainty, regulatory clarity, interoperability, and settlement assets that are widely accepted. Each factor corresponds to a practical constraint: token holders need enforceable legal rights, market participants need clear rules before they can commit capital, and assets confined to separate platforms with no commonly accepted settlement asset cannot move freely between systems.

Half of Tokenized Equity Trading Occurs Outside Regular Hours

Although the market still operates on a small scale, its features are proving popular among investors, offering availability that traditional markets do not always provide. More than half of the tokenized equity activity studied by the IMF actually took place outside regular trading hours, indicating clear demand for trading that runs 24/7 — a capability conventional exchanges, which operate during fixed daily sessions, do not offer on the same schedule.

Fractional ownership is also popular. Approximately % of tokenized equity trading was for amounts smaller than one token, an arrangement that enabled investors to gain exposure to equities while investing smaller amounts of money.

The IMF also determined that price changes in tokenized stocks had an impact on their traditional counterparts after Monday's markets opened.

Thin Liquidity Could Increase Tokenized Market Volatility

There are also major consequences associated with these efficiencies. Trading volume is lower, and prices fluctuate more in tokenized markets than in their traditional equivalents.

In addition, duplication of data across multiple networks and platforms may limit price discovery, separate liquidity, and lead to price spreads between otherwise comparable assets. The IMF cautioned that these vulnerabilities may intensify as more markets become tokenized.

Faster Settlement Could Also Spread Financial Stress

Tokenized infrastructure can condense multiple processes that are typically spread across several distinct stages, from trading through settlement and reconciliation. This can decrease costs and increase turnaround speed, but it can also eliminate the buffers that exist in traditional financial systems during times of market stress. In conventional market plumbing, those intermediate stages give institutions time to detect problems before they spread; compressing them removes that reaction window.

The IMF warned that increased interdependence and leverage could offer new opportunities for fire sales, liquidity withdrawal, and financial contagion. For this reason, the institution supports technology-neutral regulation, clearer legal rights for token holders, and stronger interoperability between tokenized platforms and traditional financial systems.

Taken together, the findings highlight both the promise of tokenized markets and the financial stability risks the fund believes could grow alongside them. The fund's recommendations — technology-neutral regulation, enforceable rights for token holders, and interoperability between tokenized and traditional systems — now frame the policy agenda for closing the gap between tokenized pilots and mainstream market infrastructure.