Global Regulator Warns Tokenized Assets May Introduce New Risks

The International Organization of Securities Commissions (IOSCO), the global body for securities regulators, has raised fresh alarm bells over the rapid rise of asset tokenization. In a report released this week, IOSCO highlighted new vulnerabilities in tokenized financial products that could challenge existing investor protections.

Based on information obtained from Yahoo, "tokenization," in this case, refers to issuing blockchain-based tokens that are linked to real-world assets, such as stocks or bonds. While this innovation promises faster trades and greater access, IOSCO warns that the underlying technology also brings unseen risks. 

Key Risks Identified by IOSCO

1. Investor Uncertainty
   Because tokenized assets can be structured in various ways, investors may not always know whether they own the underlying real-world asset or just a cryptocurrency token. IOSCO flagged this mismatch as a major risk. 
   
   
2. Counterparty Risk
   Third-party issuers of tokens create counterparty exposure: token holders depend not just on the asset itself but on the issuer’s solvency and transparency.
   
   
3. Spillover to Crypto Markets
   According to VOI, tokenized assets are becoming more intertwined with crypto markets; IOSCO is concerned about spillover effects: stress or failures in one market could cascade into the other.
   
   
4. Uneven Efficiency Gains
   According to Trading View, tokenization is often pitched as a way to reduce costs and speed up settlement. IOSCO notes that these efficiency gains remain uneven because many token issuers still rely on traditional market infrastructure to clear and settle trades. 
   
   
5. Limited Adoption
   IOSCO observes that actual tokenization adoption remains limited, a reminder that innovation does not always scale quickly.

Global Finance

IOSCO’s warning comes at a critical moment. Tokenization is viewed as more than hype; it's becoming a foundational building block for next-generation financial infrastructure. Major institutions, including Nasdaq, are already exploring tokenized products. 

If regulators don’t address the risks, tokenized assets might not deliver on their promise or, worse, introduce new systemic vulnerabilities.

This regulatory tension is not just local; it’s global. As digital assets evolve, tokenized financial products could reshape markets. If regulators and industry can agree on how to make them safe, transparent, and interoperable, in the long run, the following will ensue:

• Regulators may push for stronger disclosure rules for token issuers: how they back tokens, how they redeem them, and who legally owns what.
  
  
• Issuers of tokenized assets could be required to maintain reserve mechanisms or redemption guarantees to make them safer for token-holders.
  
  
• Adoption of tokenization may accelerate or stall depending on how market players respond to these risk warnings.
  
  
• We could see new global regulatory standards around tokenization, with IOSCO playing a central role as the threat and promise of asset tokenization converge.