Tokenization Could Pose Risks to Financial System, FSB and BIS Warn
The Financial Stability Board (FSB) and the Bank for International Settlements (BIS) have raised concerns about risks associated with tokenization, urging for increased regulation. Tokenization involves digitizing real-world assets using distributed ledger technology. The FSB identified three vulnerabilities: the reference asset being tokenized, the participants in tokenization projects, and the interaction of new technology with legacy systems. Potential implications for financial stability include scaling issues, creation of complex products, and inadequate oversight. The FSB's crypto roadmap update indicated that while many countries have implemented measures, inconsistencies remain. The BIS noted benefits of tokenization, such as reduced trading frictions, but also highlighted existing risks like credit, liquidity, and cyber risks. It warned that these risks could manifest differently due to changes in market structure and called for sound governance to address potential conflicts of interest.
