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What tokenization changes—and what it does not
The Bank for International Settlements (BIS) describes tokenization as recording claims on traditional assets on a programmable platform. Depending on the design, that platform may bring asset records, transaction instructions, and transfers together. This integration could reduce reconciliation or settlement frictions, but it is a potential design benefit, not a feature guaranteed by every token.
For securities, the U.S. Securities and Exchange Commission’s January 28, 2026 staff statement defines a tokenized security as a security represented as a crypto asset, with ownership recorded in whole or in part on crypto networks. The SEC distinguishes tokens issued by an issuer or its agent from tokens created by an unaffiliated third party. Their structures and the rights available to holders can differ.
The technology alone does not establish what a holder owns or can demand. As SEC Commissioner Hester M. Peirce put it in a July 9, 2025 statement, “Tokenized securities are still securities.” The practical question is what legal claim the token conveys, against whom, and through which register or intermediary—not simply which asset the token references.
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Why the risk assessment has to follow the whole arrangement
A conventional review of the asset’s price or an institution’s balance sheet may miss risks arising elsewhere in the chain. A tokenized arrangement can involve a legal claim, a reference asset, an issuer, a custodian, a settlement asset, a ledger and its governance, smart contracts, oracles, bridges, and connections to legacy systems. A failure or mismatch at one point can affect the others.
The Financial Stability Board’s analysis, summarized by the BIS Financial Stability Institute in August 2025, groups the main vulnerabilities into five categories. These resemble familiar financial risks, but technology and governance can amplify them or connect them in new ways.
Liquidity and maturity mismatch
A token may trade or transfer more easily than the asset or claim behind it can be sold, redeemed, or settled. If holders expect immediate liquidity but the reference asset is less liquid or has a different maturity, redemption pressure can build when confidence falls.
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Leverage
Programmable systems may allow a token received as collateral to be reused or rehypothecated. When claims and collateral are chained across activities, leverage can accumulate in ways that are difficult to see from a single platform or balance sheet.
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The token’s market price can diverge from the value or quality of its reference asset. Valuation difficulty, legal or market frictions, opaque smart contracts, or unreliable oracles—which supply outside data to software—can all contribute to a gap.
Interconnectedness
Platforms can link institutions, activities, and markets, creating paths for stress to spread. Continuous global operation may also affect volatility and make oversight more difficult across jurisdictions and operating hours.
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Operational fragilities
Smart-contract errors, lost or mismanaged private keys, unclear decision-making, transaction immutability, and weak accountability or resilience can create losses or disrupt operations. Custodians, protocol developers, bridges, and other service providers add dependencies that a review of the token alone will not capture.
A practical framework for assessing a tokenized exposure
Assess the arrangement from the holder’s legal claim outward through the assets, settlement process, technology, and service providers. This sequence helps reveal where a risk originates and who may be able to address it.
- Identify the claim. Establish whether the token is issued by the asset’s issuer or its agent, or by an unaffiliated third party. Determine whether the holder has direct ownership, a security entitlement, a redemption claim, or another contractual right. Identify the party against which that right can be enforced.
- Trace the reference asset. Find out where and how the asset is held, how it is valued and audited, and how it becomes available for redemption or settlement. Check whether legal, market, or operational constraints could prevent the token from tracking the asset or being redeemed as expected.
- Examine the settlement asset. Determine whether settlement uses a stablecoin, a tokenized bank deposit, central-bank money, or another asset. Assess who issues it, how redemption works, and whether settlement can be completed with the finality the arrangement requires. These settlement forms have different risk profiles.
- Map governance and access. Identify who can change the system, pause transactions, manage upgrades, or respond to an incident. Clarify decision rights, accountability, and whether access is permissioned or permissionless.
- List infrastructure and third-party dependencies. Map the ledger and its connection to legacy systems, as well as custodians, oracles, bridges, developers, and critical service providers. Assess what happens if a provider fails, a connection is interrupted, or a bridge does not perform as intended.
- Test programmability and composability. Review what the code automates and whether tokens can be reused across other activities. Consider code errors, unexpected interactions, leverage, opaque dependencies, and the speed at which a problem could spread.
- Check measurement and prudential treatment. Establish the valuation basis, available data history, liquidity profile, and counterparty exposures. For regulated institutions, check whether prudential rules recognize the tokenized exposure as equivalent to the traditional asset. The Basel Framework’s cryptoasset-exposure rules address infrastructure risk and permit supervisory capital add-ons when weaknesses are observed.
Compare arrangements by their actual rights and dependencies
Two tokens that reference the same asset may expose holders to different legal claims, redemption paths, settlement risks, and operational dependencies. Compare the arrangements across the dimensions that determine what a holder can claim and how the transaction works.
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| Dimension | Questions to answer | Why it matters |
|---|---|---|
| Legal claim | Is the token issuer-issued or third-party? What right does the holder have, and against whom? | A technical link to an asset does not by itself prove ownership of it or a right to redeem it. |
| Reference asset | Where is the asset held? How is it valued, audited, and made available? | Limits on access, valuation, or redemption can separate the token’s price from the asset’s value. |
| Settlement asset | What asset completes settlement, who issues it, and how does redemption work? | Settlement assets differ in issuer, redemption mechanics, and risk. |
| Governance and access | Who controls changes or incident response? Is access permissioned or permissionless? | Decision rights and accountability affect the ability to manage disruptions. |
| Interoperability and dependencies | Which legacy systems, bridges, custodians, oracles, developers, and service providers are involved? | Each connection or critical provider can create an operational or contagion path. |
| Programmability and composability | What is automated? Can the token be reused or combined with other activities? | Automation may improve efficiency but can also create code risk, leverage, and less visible dependencies. |
| Measurement and prudential treatment | What data, valuation basis, liquidity assessment, and counterparty analysis are available? How do applicable rules treat the exposure? | Risk measurement and regulatory treatment may not follow automatically from the traditional asset’s label. |
Benefits depend on design and settlement
The BIS describes a possible architecture in which delivery-versus-payment links asset transfer and payment, potentially reducing counterparty risk and post-trade reconciliation. Settlement in central-bank reserves could support finality and the singleness of money in that proposed architecture. These are design-dependent outcomes, not empirical findings that apply to all tokenization projects.
The same integration that can simplify a transaction may create harder-to-see dependencies when platforms are composable. A risk review should therefore assess efficiency and resilience together, including the settlement asset and the parties or software the arrangement relies on.
Why prepare now without overstating current systemic risk
The FSB summary characterizes financial-asset tokenization as early-stage, with many projects small-scale or experimental. It cites limited investor demand, weak interoperability between distributed-ledger platforms and legacy systems, and legal and regulatory uncertainty as constraints on adoption. It assesses current financial-stability risks as minimal, citing small scale, a focus on permissioned platforms, limited programmability, and low interconnectedness.
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That assessment is about current conditions, not a guarantee about future growth. The FSB warns that risks could rise if tokenization scales significantly, becomes more complex or opaque, or develops without sufficient oversight. IOSCO’s 2025 report also describes the ecosystem as nascent and identifies interoperability and credible settlement assets as constraints on scalability. It notes at summary level that technology-neutral IOSCO principles and guidance may remain relevant, alongside controls for risks that are novel or amplified. The case for a tailored framework is thus preparedness: make sure the assessment can evolve as arrangements and connections change, rather than assume a system-wide crisis already exists.
What a tailored framework is meant to achieve
A new framework need not discard established financial-risk principles. IOSCO’s summary points to the continued relevance of technology-neutral principles, while the Basel Framework explicitly addresses infrastructure risk for cryptoasset exposures. The adaptation is to apply those principles to the whole tokenized arrangement: the underlying claim, rights and redemption path, settlement asset, governance, code, and operational dependencies.
That approach avoids two errors: assuming that a token is safe because it represents a familiar asset, and treating tokenization itself as proof of exceptional danger. The relevant risk depends on the specific rights, assets, systems, and connections involved.
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