Tokenized Stocks: Strong Demand, Higher Risks

The IMF’s latest Global Financial Stability Report finds rising demand for tokenized stocks, driven by 24/7 trading and fractional ownership. In a sample of five liquid tokenized US equities traded across 11 venues, more than half of transactions took place outside regular US market hours, and about 80% involved less than one share. When US markets reopened, traditional stock prices reflected 87% to 99% of overnight moves in tokenized stocks; more than 85% of those moves appeared within five minutes, indicating a role in price discovery. The market was valued at about $2.3 billion as of July 31, within a roughly $65 billion tokenized real-world asset market. Ondo Finance and Backed Finance’s xStocks accounted for more than 70% of tokenized-stock activity. The IMF estimates these products are around 1.5 times as volatile as their underlying shares and have thinner liquidity, particularly on decentralised exchanges. It says systemic risks remain limited for now, but calls for clear ownership rules, stronger liquidity safeguards, interoperable platforms and secure settlement. Regulators should also monitor links with traditional markets and consider circuit breakers. For traders, round-the-clock trading may improve access and price discovery, but fragmented venues and automated margin calls or liquidations could amplify volatility as the market grows.