The International Monetary Fund published a conceptual assessment of how tokenization could affect financial market inefficiencies. Shared and programmable ledgers could lower costs across asset issuance, trading, servicing and redemption by automating processes, enabling simultaneous and faster settlement, reducing search frictions and limiting reliance on certain intermediary functions. Intermediaries are more likely to become less costly than obsolete, with investor benefits depending on market competition. The note also identifies potential adverse effects. Tokenization could accelerate shock transmission, increase interconnectedness and leverage incentives, magnify operational and cyber risks, and expose retail investors to complex products they may not fully understand. While shared ledgers could improve liquidity, innovation and competition, fragmented noninteroperable ledgers could reduce liquidity, and dominant privately owned ledgers could create new concentrations of market power. The IMF said regulation may need to adapt to capture tokenization’s benefits and mitigate its risks, although specific policy responses are outside the note’s scope. It also called for further research to quantify the effects, noting that empirical evidence remains limited.

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