The IMF's latest findings show rapid growth in tokenized assets and repo markets, but faster settlement does not guarantee liquidity, legal certainty or financial stability.

Asset tokenization risks are moving into sharper focus as blockchain-based financial markets expand beyond experimental applications. According to findings presented from the International Monetary Fund's October 2026 Global Financial Stability Report, publicly reported tokenized real-world assets (RWA) reached approximately US$65 billion by the end of July, while tokenized repo activity climbed to a US$371 billion 30-day moving average.

The figures point to a market gaining relevance, particularly in fixed income and collateral financing. Yet the investment question is no longer simply whether financial assets can be represented on a blockchain. It is whether the infrastructure supporting ownership, settlement and liquidity can withstand market stress.

Tokenization can reduce transaction costs, extend trading hours and accelerate settlement. It can also remove the operational buffers that allow financial institutions and regulators to respond when markets become disorderly. The technology does not eliminate credit or liquidity risk; it changes how quickly those risks can materialize and spread.

IMF tokenization report: What changed

At the 8 October presentation of the IMF's tokenization analysis, the data showed a market expanding unevenly across asset classes. Fixed-income instruments, including bonds, asset-backed securities and money market funds, accounted for approximately US$48 billion of the US$65 billion tokenized asset market. Tokenized equities represented a much smaller US$2.3 billion, but their trading patterns already differed from conventional equity markets.

Tokenized repo activity reached a US$371 billion 30-day moving average, highlighting growing use of programmable collateral in short-term funding markets. In US tokenized equities, more than half of trading volume occurred outside regular market hours, while approximately 80% of transactions involved fractional shares. Realized volatility was about 1.5 times that observed in traditional markets.

These figures show where adoption is gaining traction, but they do not establish that tokenized markets have achieved comparable depth or resilience. The IMF assesses current systemwide financial stability risks as limited while warning that broader adoption could amplify vulnerabilities involving operational infrastructure, settlement assets, liquidity and interconnectedness.

The central issue is therefore not market size alone. It is whether the infrastructure supporting tokenized transactions can scale without introducing new sources of financial instability.

How asset tokenization changes market risk

Traditional securities markets separate trading, clearing, settlement and custody across institutions and operating schedules. These arrangements introduce costs and delays, but they also provide safeguards. Netting reduces funding requirements, settlement windows create operational checkpoints, and intermediaries retain some discretion to manage exceptional conditions.

Tokenization compresses these processes through shared ledgers and programmable transactions. Smart contracts can automate ownership transfers, margin calls and collateral liquidation, potentially reducing settlement delays and counterparty exposure under normal conditions. During periods of stress, however, the same automation can accelerate funding demands and forced selling before institutions have time to intervene.

The risks become more complex when transactions depend on external pricing data, cross-chain bridges or shared infrastructure providers. An inaccurate oracle, software failure or compromised bridge can transmit errors across interconnected systems. Automated collateral liquidation may also amplify price declines when market depth is insufficient to absorb simultaneous selling.

Faster execution improves operational efficiency, but resilience depends on whether market participants can control the speed and consequences of automated transactions when liquidity deteriorates.

Why settlement assets matter in tokenized finance

Settlement is one of the most important structural questions in tokenized financial markets. Transferring a tokenized security and completing payment are separate economic obligations, even when technology allows them to occur almost simultaneously.

The IMF's analysis emphasizes the importance of safe settlement assets, with central bank money providing a guiding benchmark for securities settlement. Private deposit tokens and stablecoins may support programmable payments, but they can introduce additional exposure to issuer creditworthiness, redemption arrangements and liquidity management.

This creates a potential weakness in transactions where the underlying security is relatively sound but the payment instrument carries greater risk. A tokenized government bond does not become safer simply because it settles on a blockchain. Its settlement structure must also protect against failure of the payment asset or the infrastructure connecting the transaction.

As tokenized markets grow, the quality of settlement money, legal recognition of finality and interoperability between platforms will become central considerations for investors and regulators.

Tokenized real-world assets do not guarantee liquidity

The distinction between transferability and liquidity is particularly important for tokenized real-world assets. Blockchain infrastructure can make ownership records more efficient and facilitate transfers, but it cannot guarantee that a willing buyer exists at an acceptable price.

A tokenized fund interest may be technically transferable within seconds while the underlying portfolio is valued monthly or quarterly. Similarly, a tokenized private loan may remain subject to contractual transfer restrictions, limited borrower disclosure and an illiquid secondary market.

These constraints are economic and legal rather than purely technological. Tokenization can improve the administration of an asset without changing its underlying cash flows, credit quality or market depth.

The risk emerges when faster transaction capabilities create expectations of immediate liquidity that the underlying assets cannot support. If investors expect continuous access to capital from portfolios that cannot be liquidated on demand, the mismatch remains regardless of how efficiently ownership is recorded.

What tokenization means for private credit and private markets

Private credit and private funds are natural candidates for tokenization because their ownership records, transfer restrictions, distributions and compliance requirements involve substantial administrative work. Programmable infrastructure could reduce servicing costs, improve reporting and make smaller investment allocations more economical.

These benefits could support broader institutional adoption, particularly where tokenized systems improve collateral transparency and simplify the transfer of eligible fund interests. However, the investment case depends on more than operational savings. Private credit assets remain exposed to borrower performance, collateral recovery, valuation uncertainty and refinancing conditions.

Tokenization does not accelerate borrower repayments or remove restrictions embedded in loan agreements. It also does not create reliable secondary-market liquidity where buyers, independent valuations and enforceable transfer rights are absent.

For private credit managers, the more durable opportunity may therefore lie in the infrastructure surrounding tokenized assets: regulated custody, investor identity verification, compliance controls, interoperable settlement systems and independently auditable transaction records.

The strongest platforms will be those that connect technological efficiency with enforceable investor rights and credible liquidity arrangements.

Where capital may move in tokenized financial markets

Near-term adoption is likely to remain concentrated in standardized fixed-income and collateral markets. Tokenized government securities, money market funds, high-quality bonds and repo transactions benefit from relatively established legal frameworks, frequent institutional activity and clearer underlying asset characteristics.

These markets offer practical applications for faster collateral movement, more efficient settlement and improved operational transparency. Their economic value can be assessed against existing financial infrastructure rather than depending entirely on expectations of future token demand.

Private-market adoption may develop more selectively. Institutional investors will need reliable beneficial ownership records, enforceable transfer restrictions, independent valuations and settlement arrangements supported by high-quality payment assets.

Capital may consequently favour regulated custody providers, compliant tokenization platforms, settlement infrastructure and technologies that improve interoperability and risk controls. By contrast, token wrappers that provide little additional economic or operational value may struggle to establish durable competitive advantages.

Key risks in tokenized asset markets

The principal asset tokenization risks involve liquidity, settlement, governance and operational resilience. Fractional ownership can broaden participation, but it can also increase the number of investors expecting continuous prices and immediate exits. Those expectations become difficult to satisfy when the underlying assets trade infrequently.

Interoperability creates another challenge. Connecting multiple ledgers may improve market access and collateral mobility while increasing dependence on bridges, external data providers and shared infrastructure. A failure at one critical point can affect transactions across several platforms.

Automated liquidation is equally important. Smart contracts can enforce collateral requirements without delay, but synchronized selling during volatile markets may intensify price movements and create liquidity pressure. Continuous trading also reduces the operational pauses that traditional institutions use to reconcile positions and manage exceptions.

Legal uncertainty remains a fundamental constraint. Investors must understand whether a token represents direct ownership, a contractual claim or an interest held through an intermediary. Settlement finality, jurisdiction, custody rights and insolvency treatment must be enforceable outside the blockchain environment.

Without these protections, faster execution can increase exposure to risks that technology alone cannot resolve.

What Manhattan is watching

The next phase of tokenization will be measured less by issuance announcements than by evidence of functioning secondary markets. Manhattan is monitoring trading turnover, bid depth, settlement failures and the ability of tokenized assets to retain liquidity during volatile conditions.

Settlement infrastructure will be another priority, particularly the quality and concentration of payment assets, oracle governance, cross-chain security and the legal recognition of transaction finality. The performance of automated collateral liquidation during market stress will provide an important test of whether programmable finance improves resilience or accelerates contagion.

In private credit, the decisive evidence will be the development of genuine two-way markets for tokenized loan and fund interests. Efficient ownership records are valuable, but they should not be mistaken for reliable exit liquidity.

Manhattan View: The token is not the market

Tokenization can make financial markets faster and more efficient, but it cannot compensate for weak legal structures, inadequate liquidity or poor governance. The IMF's findings indicate that programmable finance is gaining economic relevance first in fixed-income and funding markets, where settlement design and collateral management have direct implications for financial stability.

For investors, the relevant questions extend beyond whether an asset exists on-chain. They include who controls the ledger, what legal rights the token represents, which settlement asset completes the transaction and how liquidity is provided when markets become stressed. Equally important is whether automated processes can be interrupted or corrected when their assumptions fail.

The next stage of tokenized finance will reward infrastructure that combines efficiency with enforceable rights, credible settlement and effective risk controls. Digital transferability is a technological feature; liquidity remains an economic outcome.

Structure first. Yield second. Access only matters when the structure is worth accessing.

Sources

  1. IMF — October 2026 Global Financial Stability Report
  2. Seoul Economic Daily — IMF warns asset tokenization creates new vulnerabilities
  3. The Asia Business Daily — Bank of Korea and IMF tokenization analysis
  4. IMF — Financial market infrastructure in a tokenized economy
  5. IMF — The rise of tokenization: Deciphering new trends in payments and asset tokenization

Financial-information disclaimer: This material provides general financial information and editorial analysis, not personal investment, legal or tax advice. Tokenized markets and applicable regulation remain in development, and reported figures may change as data coverage improves.