Tokenization of Financial Assets | IOSCO Report

IOSCO Tokenization Report: A Landmark Assessment of DLT in Capital Markets

The International Organization of Securities Commissions (IOSCO) has published its most comprehensive assessment to date of how tokenization and distributed ledger technology are reshaping capital markets. Released in November 2025, this 73-page final report represents the culmination of extensive research by the Fintech Task Force’s Tokenization Working Group, drawing on literature reviews, regulatory surveys, and stakeholder outreach from securities regulators across 14 major jurisdictions.

The report arrives at a critical juncture for global financial markets. While proponents of tokenization argue it can create profound efficiencies through fractionalization, programmability, composability, and atomic settlement, the reality on the ground reveals a more nuanced picture. The ecosystem remains nascent, with significant structural challenges around interoperability, settlement assets, and legal frameworks that must be addressed before tokenization can achieve its promised scale.

For institutional investors, asset managers, and financial regulators, this IOSCO report provides the most authoritative analysis of where tokenization stands today, where it is heading, and what risks must be managed along the way. The findings carry particular weight given IOSCO’s role as the global standard-setter for securities regulation, representing over 130 jurisdictions that collectively oversee more than 95% of the world’s securities markets. Explore more analyses of financial regulation and market innovation in our interactive library.

Commercial Adoption of Tokenization Across Asset Classes

IOSCO’s monitoring exercise reveals that commercial adoption of tokenization varies significantly across asset classes, with clear leaders and laggards emerging in the race to bring blockchain-based securities to market. The overall trajectory shows growing commercial interest, though the projected growth path remains uncertain and uneven.

Fixed income products—particularly bonds—have emerged as the frontrunner in tokenization adoption. Major financial institutions including the European Investment Bank, the World Bank, and large commercial banks have issued tokenized bonds, with issuance volumes growing steadily since 2021. The structural characteristics of bonds—standardized terms, periodic payments, and well-defined lifecycle events—make them particularly amenable to blockchain-based issuance and management.

Money market funds represent the second major growth area, driven in part by the crypto ecosystem’s demand for stable, yield-bearing assets. The intersection of tokenized money market funds with the stablecoin market has created a dynamic new use case that IOSCO examines with particular attention to its regulatory implications.

Repos and collateral markets have seen notable innovation, with intraday repo transactions becoming a flagship use case for tokenization technology. The ability to mobilize collateral more efficiently through blockchain-based systems addresses a genuine pain point in traditional finance infrastructure.

Equities tokenization, by contrast, remains in early stages. While several platforms have launched tokenized equity products, secondary trading volumes remain thin, and most activity continues to rely on conventional financial infrastructure. The liquidity challenges inherent in fragmented blockchain-based trading venues have proven difficult to overcome.

Tokenized Bonds and Fixed Income Products Leading the Way

The tokenization of bonds represents the most mature and commercially viable application of DLT in capital markets. IOSCO’s analysis reveals that the bond tokenization ecosystem has evolved beyond proof-of-concept experiments into genuine commercial deployment, with sovereign issuers, supranational organizations, and major banks actively participating.

Several factors drive bond tokenization’s leading position. The issuance process benefits from smart contract automation, reducing administrative overhead and enabling more efficient lifecycle management. Coupon payments can be automatically executed, corporate actions programmed, and compliance checks embedded directly into the token’s logic. These features align with the industry’s broader push toward straight-through processing and operational efficiency.

However, IOSCO notes important limitations. While the creation and issuance of digital tokens representing bonds has evolved significantly, the impact on distribution and secondary trading has been more limited. Most tokenized bonds continue to rely on conventional financial infrastructure and intermediaries for post-issuance activities, due to accessibility and liquidity concerns regarding DLT platforms. This creates an asymmetry where issuance innovation runs ahead of trading infrastructure—tokens are born digital but often live in hybrid environments.

The report documents how different jurisdictions have approached bond tokenization differently. Some have enabled issuance under existing securities law with minimal adaptation, while others have created specific regulatory pathways or sandbox environments. This regulatory fragmentation itself becomes a barrier to the cross-border tokenization that proponents envision as a transformative benefit. The Bank for International Settlements has similarly documented these cross-border challenges in its own tokenization research.

Tokenization of Money Market Funds and Crypto Interconnections

One of the report’s most significant findings concerns the growing interconnection between tokenized money market funds and the cryptocurrency ecosystem. IOSCO identifies early signs of interlinkages that could have systemic implications as tokenization scales—specifically, the increasing use of tokenized money market funds as stablecoin reserve assets and as collateral for crypto-related transactions.

This development creates a new channel of contagion between regulated capital markets and the less-regulated crypto ecosystem. If a major stablecoin were to experience a run, the redemption pressure could flow through to tokenized money market funds and, by extension, to the underlying traditional fixed income instruments they hold. Conversely, stress in traditional money markets could propagate into crypto markets through these same interlinkages.

The commercial appeal is clear: tokenized money market funds offer crypto market participants access to yield-bearing, relatively stable assets without leaving the blockchain ecosystem. For issuers, the crypto market represents a substantial new distribution channel. But regulators face the challenge of ensuring adequate investor protection and systemic risk management in an environment where the boundaries between traditional and decentralized finance are increasingly blurred.

IOSCO’s analysis suggests that as these interlinkages deepen, regulators will need coordinated approaches that span both traditional securities regulation and emerging crypto asset frameworks. The potential for spillover effects makes this one of the most important areas for ongoing monitoring.

Issuance, Distribution, and Secondary Trading of Tokenized Assets

IOSCO’s examination of lifecycle activities across tokenized assets reveals an uneven pattern of innovation—with significant advances in issuance but limited transformation of distribution and secondary trading. This asymmetry highlights both the potential and the current limitations of tokenization technology in practice.

On the issuance front, the process of creating digital tokens to represent financial assets has evolved substantially. Smart contracts enable automated lifecycle management, embedded compliance checks, and programmable features that traditional book-entry systems cannot easily replicate. Multiple models have emerged: native issuance directly on blockchain, wrapped tokens representing existing assets, and hybrid approaches that maintain dual records across traditional and DLT systems.

Distribution, however, remains largely conventional. Most tokenized securities are distributed through existing channels—banks, broker-dealers, and established platforms—rather than through novel blockchain-based distribution mechanisms. The promise of democratized access through fractionalization has been realized primarily in limited pilot programs rather than at scale.

Secondary trading presents the greatest challenge. DLT-based trading venues face fundamental liquidity problems: with tokenized assets spread across multiple blockchain platforms, each with its own token standards and settlement mechanisms, the fragmentation prevents the pooling of liquidity necessary for efficient price discovery. IOSCO notes that this fragmentation may actually worsen market quality compared to traditional centralized exchanges, where liquidity concentrates naturally. Discover more insights on capital markets innovation and digital transformation in our interactive library.

DLT Settlement Infrastructure and Clearing Challenges

Perhaps the most counterintuitive finding in IOSCO’s report concerns settlement: while DLT-based infrastructure demonstrably enables faster settlement times—potentially achieving atomic settlement where delivery and payment occur simultaneously—market participants continue to prefer traditional settlement systems when given the choice.

This preference for incumbency reflects several factors that go beyond pure technical capability. Unfamiliarity with DLT-based infrastructure creates organizational resistance, as operations teams, compliance departments, and risk management functions must all adapt to new workflows and controls. Operational and cyber vulnerabilities unique to blockchain technology—including potential attacks on nodes, transaction processing congestion, and smart contract exploits—introduce risk categories that traditional custodians and clearing houses have not historically managed.

Network effects powerfully reinforce the status quo. Traditional settlement infrastructure benefits from deep integration with payment systems, custody networks, and regulatory reporting frameworks that have been refined over decades. A tokenized bond settling on a DLT platform still needs to interface with conventional payment rails for the cash leg of the transaction, creating complexity rather than simplification unless both legs can settle natively on-chain.

The lack of credible on-chain settlement assets compounds this challenge. While various forms of tokenized cash, stablecoins, and central bank digital currencies (CBDCs) have been proposed as settlement media, none has achieved the ubiquity, regulatory acceptance, and operational reliability needed to replace central bank money in securities settlement. The European Central Bank’s digital euro initiative and similar CBDC projects worldwide could eventually address this gap, but timelines remain uncertain.

Digital Custody and Collateral Management Innovations

Asset servicing activities—particularly custody and collateral management—represent areas where tokenization has delivered tangible operational improvements according to IOSCO’s findings. Digital custody models are evolving to accommodate blockchain-based assets, while collateral mobility has been enhanced through innovations like intraday repo transactions.

Traditional custody involves maintaining records of asset ownership, safeguarding assets, and processing corporate actions. For tokenized assets, custody takes on additional dimensions: the management of private keys that control on-chain assets, the reconciliation between on-chain and off-chain records, and the implementation of controls specific to blockchain technology such as whitelisting and smart contract permissions.

IOSCO observes that major custodian banks are investing significantly in building digital asset custody capabilities, either through internal development or partnerships with specialized crypto custodians. This convergence of traditional and digital custody reflects the industry’s expectation that tokenized assets will coexist with conventional instruments for the foreseeable future, requiring custodians to operate across both paradigms.

Collateral management innovations offer perhaps the most immediately compelling use case for tokenization in institutional markets. The ability to move collateral intraday—rather than on overnight or T+1 timelines—through tokenized repo transactions addresses a genuine efficiency gap in traditional markets. Multiple platforms have demonstrated successful intraday repo operations, allowing financial institutions to optimize their collateral usage and reduce the costs associated with holding idle buffer stock.

Risks and Regulatory Implications of Financial Tokenization

IOSCO’s risk analysis reveals that while most risks from current tokenization arrangements fall within existing risk taxonomies, the manifestation of these risks introduces novel vulnerabilities that require new or additional controls. The report categorizes risks into three primary domains that collectively frame the regulatory challenge.

First, risks related to the representation of financial assets as tokens. Well-established legal frameworks exist for paper certificate and book-entry securities, but it can be unclear whether these frameworks extend equally to tokenized representations. For non-native tokens—where a digital token represents an existing off-chain asset—the structuring options create potential investor uncertainty about ownership rights and transferability. Despite holding a digital token, an investor may not fully understand their legal position regarding the underlying asset.

Second, operational risks unique to DLT infrastructure. These include cyber-attacks targeting blockchain nodes, congestion in transaction processing, data leakage from insufficient privacy controls, market fragmentation across incompatible networks, smart contract bugs that could lock or misdirect assets, and the catastrophic risk of private key loss. Smart contract vulnerabilities are particularly concerning because the automated, immutable nature of blockchain transactions means errors can be difficult or impossible to reverse.

Third, systemic risks from increased interconnectedness. As more assets and market participants converge on common DLT networks, dependencies multiply in ways that could amplify existing market risks. A failure of a shared blockchain platform, for instance, could simultaneously affect multiple asset classes, issuers, and trading venues—a concentration risk that traditional market infrastructure has deliberately sought to avoid through diversification. Explore related regulatory analyses in our interactive library of financial regulation reports.

Regulatory Responses: Sandboxes, Guidance, and New Frameworks

IOSCO documents the diverse range of regulatory responses its members have adopted to address tokenization, reflecting both the novelty of the technology and the principle of regulatory proportionality. The approaches can be broadly categorized into four strategies, often deployed in combination.

Application of existing frameworks represents the most common starting point. Given IOSCO’s technology-neutral, principles-based approach to securities regulation, most tokenized financial assets—being fundamentally securities regardless of their technological wrapper—fall within existing regulatory perimeters. This approach provides immediate regulatory coverage but may leave gaps where tokenization introduces genuinely novel risk factors.

Specific guidance has been issued by several jurisdictions to clarify how existing rules apply to tokenized assets. This addresses market participants’ demand for regulatory certainty without requiring legislative change, though it may lack the legal force of formal regulation. The U.S. Securities and Exchange Commission and the UK’s Financial Conduct Authority have been particularly active in providing such guidance.

Sandbox regimes offer a controlled environment for market participants to test tokenization arrangements with regulatory oversight but relaxed requirements. Multiple IOSCO jurisdictions have established crypto or fintech sandboxes, with the EU’s DLT Pilot Regime representing perhaps the most structured approach. These sandboxes generate valuable supervisory learning while allowing innovation within defined risk boundaries.

New or amended legislation has been enacted in some jurisdictions to explicitly accommodate tokenized assets. These legislative changes may address specific gaps—such as the legal status of smart contract-based transactions or the recognition of digital custody arrangements—that cannot be adequately covered through guidance alone. IOSCO notes that this approach provides the strongest legal certainty but requires longer implementation timelines.

Scaling Tokenization: Systemic Risks and Market Structure Changes

IOSCO’s forward-looking analysis examines what could change as tokenization scales beyond current pilot-level volumes. The potential implications for market structure and systemic stability are significant and demand proactive regulatory attention.

Changes in market activities could emerge as tokenization enables new forms of market behavior. Programmable assets could facilitate automated trading strategies that operate at blockchain speed, potentially creating new vectors for market manipulation or flash crash dynamics. The composability of DeFi protocols—where tokenized assets can be combined in complex, automated strategies—introduces layered risks that traditional market surveillance tools may not detect.

Market structure itself could shift fundamentally. The traditional separation between issuance, trading, clearing, and settlement—maintained through distinct market infrastructure entities—could blur as DLT enables vertically integrated platforms that combine multiple functions. While potentially more efficient, this consolidation would concentrate operational risk and could reduce the competitive dynamics that currently serve market quality.

Increased dependencies and interconnectedness represent perhaps the greatest systemic concern. The convergence of multiple asset classes, market participants, and jurisdictions on shared blockchain networks creates concentration points that could propagate failures across the financial system. The growing interlinkages with crypto asset markets—documented through tokenized money market fund usage as stablecoin reserves—introduce additional channels for contagion that cross the boundary between regulated and less-regulated financial activity.

IOSCO concludes that while existing regulatory principles and standards provide a strong foundation, ongoing monitoring and potentially new policy approaches will be needed as the tokenization ecosystem matures. The organization’s Objectives and Principles of Securities Regulation, Recommendations for Crypto and Digital Asset Markets, and Recommendations for Decentralized Finance collectively offer a comprehensive framework—but one that must evolve alongside the technology it governs.