The International Monetary Fund has highlighted concerns that stablecoins mirror money market funds more than true currency and could be susceptible to confidence-driven runs as tokenization grows. Tobias Adrian, financial counsellor and director of the IMF’s monetary and capital markets unit, notes in a report that tokenization represents a structural shift of trust within finance systems. Traditional frameworks benefit from delays such as end-of-day settlements and batch processing, providing regulators with time for intervention. Tokenization removes these buffers by ensuring continuous and automated settlements, potentially leading to immediate liquidity crises.
The IMF report identifies a disconnect between the rapid cross-border operations of tokenized systems and national crisis management structures. It suggests that control in tokenized finance may be governed more by code and governance keys than institutions accessible to regulators.
Adrian proposes a five-pillar policy roadmap, urging governments to base tokenized settlements on safe assets like wholesale central bank digital currencies, apply uniform regulations for similar activities, and modify central bank liquidity tools for automated environments. The report emphasizes that legal mandates for financial stability should override automated execution, recommending mandatory audits and emergency pause mechanisms for significant smart contracts.
This is part of an ongoing series from the IMF cautioning against digital assets, starting with critiques on private cryptocurrencies as a risky path to financial inclusion, a collaborative risk roadmap with the Financial Stability Board concerning crypto’s impact on financial stability, and recent warnings that stablecoin adoption could undermine central bank control.
Experts conversing with Decrypt acknowledge the report’s significance, though noting some gaps. Siwon Huh from Four Pillars suggests the report may mislead policymakers into thinking the current system is secure by treating it as a safe baseline while only focusing on tokenization’s incremental risks. He points out that traditional finance already harbors systemic vulnerabilities, such as settlement delays and opaque over-the-counter derivatives.
According to Huh, major stablecoins like USDT and USD Coin, backed by Treasuries, reverse repos, and cash, resemble prime money market funds but lack regulatory safeguards. Nonetheless, the IMF’s comparison serves as a crucial correction against narratives that position stablecoins as equivalent to central bank money.
“Stablecoins aren’t designed to be central bank money,” states Alan Qureshi, CEO of Black Lake. “For investors, they offer access to high-quality liquid assets for value storage. For issuers and banks, they operate as a liquidity tool.” Regulated stablecoins serve as localized liquidity pools distributing collateral system-wide, according to Qureshi.
While cross-border resolution gaps and the balance between speed and intervention are valid concerns, these risks represent inherent features of a faster-moving financial system, he argues. Neil Staunton, CEO of Superset, concurs with the report’s framing but cautions that excessive caution could hinder infrastructure development essential for stability. Tokenized systems replace slow settlements with cryptographic safeguards like smart contracts and real-time verification, which Staunton considers alternative tools rather than inferior ones. Exchanges such as NYSE and Nasdaq are already constructing the coordinated infrastructure advocated by the IMF.