Tokenized Finance, Displacing Banks?...IMF 'Code Risk Grows'

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A warning has emerged that tokenization could shift the center of financial power and risk from banks to code. It was even suggested that key smart contracts could grow into 'too big to fail' entities within the financial system.

According to cryptocurrency specialized media BeInCrypto on July 5 (local time), the International Monetary Fund (IMF) warned that tokenization could shift banking risks to code and platform operators. Traditional financial transactions involve time delays through banks and intermediaries. The IMF explained that these delays also act as a safeguard, slowing the spread of financial shocks.

Tokenization settles transactions instantly on a shared ledger. Smart contracts execute transactions automatically without human intervention. While costs are lowered, it is pointed out that if system errors or large-scale fund outflows occur, the shock could spread rapidly. The IMF stated, 'Effective supervision must extend beyond institutions to the code itself.'

The IMF also raised the possibility that some smart contracts could occupy an overly critical position in the financial system. BeInCrypto linked this to the 'too big to fail' concept applied to banks during the 2008 financial crisis. Furthermore, judicial rulings on who owns tokenized assets in transactions that exist solely in code have not yet been established.

The market size is growing rapidly. BlackRock's (BLK) tokenized fund BUIDL holds approximately $2.4 billion. Ondo manages over $1.4 billion in tokenized assets. The stablecoin market size exceeds $300 billion, significantly surpassing other tokenized assets, which are around $32 billion.

USDC once fell to $0.87 in March 2023. This was due to $3.3 billion being tied up in a bankrupt bank. The size of USDT is approximately $186 billion, and USDC has expanded to about $73 billion. BeInCrypto reported that while the industry expects a faster and cheaper market, the IMF is warning that the same speed carries the risk of rapidly spreading financial shocks.

[Article Key Summary]

-The IMF warned that tokenization could shift financial risks from bank balance sheets to smart contracts and platform operators.

-It was suggested that some smart contracts could grow to a 'too big to fail' position in the financial system.

-The stablecoin market size has exceeded $300 billion, and the IMF emphasized that financial supervision should extend to the code itself.

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