The Financial Stability Board (FSB) and the Bank for International Settlements (BIS) raised concerns over the potential risks associated with tokenization in recent reports. They highlighted three main vulnerabilities: the underlying reference asset being tokenized, the participants involved in distributed ledger technology (DLT) projects, and the interaction of new technology with legacy systems. Klaas Knot, FSB chair, noted that if tokenization scales significantly, it may lead to implications for financial stability, particularly if it creates complex, opaque products that trade automatically. The BIS also outlined that tokenization could introduce existing risks such as credit and liquidity risks, urging for sound governance amidst these developments. Governments worldwide are increasingly exploring tokenization, which the FSB prioritized monitoring earlier this year. The BIS report to the G20 emphasized the need for regulation to manage the emerging risks while recognizing the benefits of tokenization in reducing operational frictions in trading assets.

Source 🔗