For institutional markets, that is the real story. Tokenisation is often marketed as a cleaner, faster way to issue, trade and settle assets. The IMF does not dispute that. In fact, it acknowledges that tokenised finance can enable atomic settlement, continuous liquidity management and embedded compliance across the regulated system. But it also makes clear that speed and automation do not remove risk. They relocate it — from institutions and operational processes into infrastructure, governance and legal design.
That matters because much of the current market narrative still treats tokenisation as a technical enhancement. The IMF’s view is more fundamental. In traditional finance, trust is distributed across intermediaries, legal processes, reconciliation delays and institutional buffers. In tokenised systems, that trust shifts into shared ledgers, smart contracts and automated execution.
The most immediate debate is around settlement speed. The IMF warns that instantaneous or near-instant settlement can remove some of the buffers that exist in conventional markets. Those buffers, while inefficient, give institutions time to net exposures, mobilise liquidity and intervene before settlement becomes final. In tokenised markets, margining becomes automated, liquidity needs become continuous and stress can propagate much faster. The note warns that without effective risk absorption mechanisms, settlement failures and liquidity shocks can spread quickly, while automated margin calls can reinforce procyclical selling in stressed conditions.
Richard Baker, founder and CEO of Tokenovate, sees the issue differently. He argues that delays in settlement are not safeguards but legacy constraints that can increase counterparty exposure and trap liquidity. In his view, risk does not primarily arise from speed itself, but from fragmentation between systems, manual processes and delayed visibility. That is an important distinction. It suggests the real question is not whether faster settlement is inherently destabilising, but whether institutions are replacing fragmented post-trade processes with synchronized, transparent and legally enforceable ones.
“The IMF’s concerns that tokenisation could accelerate market stress place significant emphasis on speed, but these risks overlooking where vulnerabilities actually arise within today’s market structure,” Baker says.
“In practice, risk tends to accumulate between systems, where fragmented data, manual processes and delayed visibility limit the ability to act with precision.”
He adds: “Settlement cycles were not designed as a mechanism for risk control. They are largely a consequence of operational complexity and, in many cases, extend exposure rather than mitigate it.”
“Faster settlement should not be seen as removing safeguards, but as embedding them more effectively within the market itself.” Richard Baker, Tokenovate
That tension sits at the centre of the institutional tokenisation debate. Faster settlement may reduce open exposure, but only if the surrounding legal and governance framework is robust enough to support it.
And this is where the IMF report becomes especially valuable. Its most important warnings are not really about technology at all. They are about legal certainty.
The note says legal uncertainty remains a major barrier to scaling tokenised systems beyond pilot projects. Institutional participants need clarity on whether tokenized records are definitive proof of ownership, whether settlement finality on ledger is legally recognized, and how rights and obligations will be enforced when execution is carried out by code. Without that clarity, tokenised markets risk remaining fragmented and peripheral rather than systemically significant.
That concern becomes even more acute in bankruptcy and insolvency scenarios. The IMF points out that in many jurisdictions, tokenisation still represents a claim against the issuer rather than a direct property right in the underlying asset. In practice, that means the underlying asset may be commingled and could be treated as an unsecured claim in bankruptcy. For institutional investors, custodians and post-trade operators, that is not some footnote for the lawyers. It is the entire ball game.
The IMF also argues that a dual-layer legal model is likely to emerge. Smart contracts may define operational rules, but traditional legal agreements will still be needed to establish rights, obligations and dispute resolution. Legislators and courts, it says, must clarify the relationship between these layers if legal certainty is to be preserved as execution becomes automated. In other words, code may handle the workflow, but law still has to decide whether the workflow means anything when challenged.
There is also a cross-border dimension. Tokenised finance operates across shared ledgers and multiple jurisdictions, often without a clear geographic anchor. The IMF warns that this creates a mismatch with crisis management and resolution regimes built around nationally domiciled institutions and jurisdiction-specific legal powers. The key levers of control may no longer sit neatly inside a local entity or infrastructure, but in governance keys, consensus mechanisms or smart contract logic operating across borders. That raises uncomfortable but necessary questions: who has authority in a crisis, where does finality legally sit, and who can intervene when the system is always on and moving at machine speed?
This is precisely why Baker’s focus on fragmentation is so relevant. If tokenisation is to strengthen institutional markets rather than merely speed them up, the legal, operational and infrastructural layers must move together. “Faster settlement should not be seen as removing safeguards, but as embedding them more effectively within the market itself,” he says. “The result is a system with lower exposure, clearer visibility and greater resilience, particularly in periods of stress.”
That may well be the right ambition. But the IMF’s warning is that ambition alone is not architecture. For institutional tokenisation to scale, markets will need more than better code and smoother workflows. They will need enforceable ownership rights, legally recognized settlement finality, interoperable standards, crisis governance and clarity over who bears risk when smart contracts meet the real world. Until then, tokenisation’s biggest challenge is not speed.
It is whether the law can keep up when the market infrastructure stops waiting for it.
Link to the IMF Note on Toekinzed Finance by Tobias Adrian https://www.imf.org/-/media/files/publications/imf-notes/2026/english/insea2026001.pdf
Tokenovate – https://www.tokenovate.com/ Founded in 2022 by Richard Baker and Gerard Banaszkiewicz to automate post trade processes in capital markets
