IMF warns tokenized markets may deepen flash crashes, says governments will step in
Analysis
Price Impact
HighThe imf's warning about tokenized markets potentially deepening flash crashes and increasing volatility, coupled with the explicit statement that governments will step in, introduces significant uncertainty and risk. this could lead to a cautious sentiment among investors and developers in the short-to-medium term.
Trustworthiness
HighThe international monetary fund (imf) is a highly reputable global financial institution whose statements on market stability and financial systems carry substantial weight and influence policy-making worldwide.
Price Direction
BearishWarnings of increased volatility, flash crashes, and potential systemic shocks from a major global body like the imf tend to create a bearish sentiment. the prospect of increased government intervention and regulation, while potentially leading to stability in the long run, often stifles innovation or introduces restrictive measures, which can be seen as negative for growth in the short to medium term.
Time Effect
LongDiscussions and warnings from institutions like the imf typically lay the groundwork for future regulatory frameworks and policy changes. the impact of these governmental interventions and new regulations will unfold over an extended period, shaping the market structure and adoption of tokenized assets for years to come.
Original Article:
Article Content:
Christina Comben 1 minute ago IMF warns tokenized markets may deepen flash crashes, says governments will step in Tokenization promises faster, cheaper markets, but the IMF warns new risks and government intervention will come with the shift to programmable finance. Listen 0:00 4 News COINTELEGRAPH IN YOUR SOCIAL FEED The IMF dropped an explanatory video on its X handle today exploring the new phenomenon of tokenized markets. The international body responsible for ensuring the stability of the international monetary system recognized the advantages of tokenized markets in the video , but warned that they can be prone to flash crashes and are more volatile than traditional markets. “Tokenization can make financial markets faster and cheaper, but efficiencies from new technologies often come with new risks,” the video states. IMF lays out benefits of tokenized markets The video frames tokenization as the next step in money’s evolution , explaining that tokenization can make it “faster and cheaper to buy, own, and sell assets” by cutting down the long chain of intermediaries. Instead of relying on clearinghouses and registrars, a tokenized market can automate those functions in code. Source: IMF According to the IMF, researchers studying early tokenized markets have already “found significant cost savings,” with programmability allowing near‑instant settlement and more efficient collateral use. Related: Binance adds BlackRock’s BUIDL as off-exchange collateral for institutional traders Warns of risks tokenization can bring The IMF stresses, however, that those same efficiencies can amplify familiar dangers. Automated trading has “already led to sudden market plunges known as flash crashes,” and the IMF cautions that tokenized markets, with instantly executed trading, “can be more volatile” than traditional venues. In stressed conditions, complex chains of smart contracts “written on top of each other” could interact “like falling dominoes,” turning a local problem into a systemic shock. The video also highlights the risk of fragmentation if many tokenized platforms emerge that “don’t speak to each other,” undermining liquidity and failing to deliver on the promise of faster, cheaper markets. Then it dropped an ominous warning hinting at increased participation from global governments to come. “Governments have rarely been content to stay on the sidelines during important evolutions of money.” It adds that, if history is any guide, they are likely to take “a more active role in the future of tokenization.” Governments’ role in money shifts History is littered with examples of global governments’ participation in monetary evolutions. In 1944, the Bretton Woods agreement saw governments actively redesign the global monetary system, fixing exchange rates to the United States dollar and tying the dollar itself to gold. It was a top‑down decision that shaped cross‑border finance for a generation. When mounting fiscal costs and external imbalances made the gold peg unsustainable, the collapse of that framework in the early 1970s ushered in fiat currencies and floating exchange rates, alongside structurally larger public‑sector deficits in many advanced economies. Related: Gold buying boom mirrors Bitcoin’s momentum: Deutsche Bank IMF research meets a maturing tokenization market This is not the IMF’s first foray into tokenization. The Fund has spent years probing the tokenization market structure and digital money. Shifting that analysis into a public‑facing explainer video shows that tokenization is now seen as a mainstream policy issue , rather than a niche experiment. Tokenized markets have grown to a multibillion-dollar industry with key players like BlackRock’s BUIDL fund quickly becoming the world’s largest tokenized Treasury fund , surpassing Franklin Templeton’s Franklin OnChain US Government Money Fund and quickly growing through 2024 and 2025. The IMF’s video posits that tokenization may deliver faster, cheaper, and more programmable markets (but those markets will grow under closer regulatory scrutiny, and governments are ready to intervene). Magazine: Robinhood’s tokenized stocks have stirred up a legal hornet’s nest # Blockchain # Cryptocurrencies # IMF # Adoption # Regulation # BlackRock # Tokenization # RWA Tokenization # Policy Add reaction