Why tokenizing an asset does not eliminate risk

“Tokenized” has become a synonym for modern, and modern is often confused with safe. An apartment split into a thousand tokens, a business loan recorded on a blockchain, a fund unit traded at any hour: all of this sounds like progress. In part, it is. But the technology changes the packaging of the investment, not its contents.

This article separates what tokenization changes from what it does not. The references are reports from international bodies that follow the subject: the International Monetary Fund (IMF), the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO), the Organisation for Economic Co-operation and Development (OECD) and the Bank for International Settlements (BIS). All were published between 2024 and 2026.

What tokenization changes

The IMF defines tokenization as recording and transferring assets on a digital ledger that is widely shared, trusted and can be programmed (IMF, FinTech Note 2025/001, January 2025). From this definition come the four real changes:

• Recording. Ownership of the right is recorded on a digital network, not only in the internal system of a bank, broker or registrar.
• Transfer. The token can change hands faster and, in some designs, with delivery of the asset and payment happening at the same time.
• Fractionalization. An expensive asset can be divided into small parts, which broadens access.
• Programming. Rules can be embedded in the token itself through smart contracts, programs that execute actions automatically when certain conditions are met.

According to the IMF, this can make issuing and maintaining assets cheaper, with fewer intermediaries, and reduce trading costs. But the same note states that some inefficiencies would shrink, others would remain and new ones could arise.

The BIS, in a report to the G20 in October 2024, treats “cheaper and faster” transactions as potential benefits, alongside costs and risks that “also need to be considered” (BIS, October 2024). The FSB takes the same line: many of these benefits “have yet to be proven” and may not be unique to tokenization (FSB, October 2024).

What tokenization does not change

The risk of the asset itself

If the property is vacant, rent does not come in. If the debtor company goes bankrupt, the loan is not repaid. If the market falls, the price falls. None of this depends on whether the right is recorded on paper, in a bank system or on a blockchain.

The FSB describes the tokenized asset as the reference asset, the real good or right that the token represents, and lists this asset as one of the three sources of vulnerability in tokenization, alongside participants and technology. In Brazil, the CVM (Brazil’s securities regulator) follows the same logic in the regulatory sense: the fact that an asset is digital or on a blockchain “is irrelevant” to deciding whether it is a security (CVM, Guidance Opinion 40, 2022). What counts is the economic substance, and that includes risk.

Issuer risk and legal risk

Whoever buys a token is actually buying a right against someone: the issuer, a company that holds the asset or a vehicle created for the deal. If that someone fails, commits fraud or disappears, the token loses its basis.

IOSCO, in a final report from November 2025, points out that, for tokens representing assets that exist off the network, the variety of structures can create uncertainty about the rights to and ownership of the underlying asset. That is, the investor may hold the token without understanding what ownership rights they actually have. The report adds that there is legal risk if ownership or transfers made with tokens are not recognized as the investor expected, and that different operators treat as the official record sometimes the blockchain, sometimes a traditional register off-chain (IOSCO, Tokenization of Financial Assets, 2025).

The OECD is direct: owning a token does not necessarily mean owning the underlying asset. In some jurisdictions, it is also unclear what the investor’s position is in a bankruptcy or whether they recover the asset when the custodian fails (OECD, Tokenisation of assets and distributed ledger technologies in financial markets, 2025).

For real estate in Brazil, this point is concrete: ownership is proven by the property record (matrícula) at the Real Estate Registry, not by a token. The map of who regulates each part is in real estate tokenization in Brazil: who regulates what.

Liquidity

Liquidity is how easily an asset can be turned into cash without losing much value. A token can be transferred in seconds, but that does not guarantee there is someone willing to buy it at the price you want.

The FSB warns that a token representing a fraction of an asset can give a false impression of ample liquidity, even though the reference asset is illiquid. In a moment of stress, a wave of redemption requests can force the issuer to sell the asset in an illiquid market and knock down the price of the tokens. IOSCO observes that, in the cases analyzed, many of the promised benefits, especially secondary market liquidity, are not yet clearly proven. And the OECD notes that adoption of tokenization remains scarce, with most operations in pilots and fragmented environments.

In the editorial team’s assessment, when a platform promises you can “exit whenever you want”, it is worth asking who will buy your token and what happens if no one wants to.

Valuation and price

Fractionalizing a property does not make it easier to know what it is worth. The token’s price depends on a valuation of the asset and, often, on data brought in from outside the network by services called oracles, which feed smart contracts with information such as prices and events.

The FSB points out that the combination of contracts and protocols can bring complexity and opacity and impair the investor’s ability to assess the quality and price of tokenized assets. It also notes that oracles can be targets of attacks and manipulation. Tokens representing the same asset on different platforms may have diverging prices.

Custody

Custody is the safekeeping of an asset by someone responsible for it. In tokenization, it exists in two layers: safekeeping of the token and safekeeping of the real asset that backs the token.

The OECD highlights the role of a trusted custodian that guarantees the backing of the tokens and ensures that an asset, such as a property, is tokenized only once, without being represented by several tokens on several platforms. IOSCO lists the loss of private keys among operational risks. The BIS, quoting the chair of the Committee on Payments and Market Infrastructures, sums it up: “the well-known risks of existing systems apply”, including credit, liquidity, custody and operational risk.

The types of wallet and the difference between self-custody and custody with a company are in crypto wallets: custodial and non-custodial.

The risks the technology adds

Besides not eliminating old risks, tokenization can add new ones. IOSCO cites cyberattacks on network nodes, congestion, data leaks, market fragmentation, bugs in smart contracts and loss of private keys. The OECD adds that smart contract risk compounds IT operational risk, with coding errors and compromised keys. The IMF mentions risks from chains of interdependent contracts and from faulty code.

There are also system-wide effects. The FSB assesses that, given its still small scale, tokenization does not currently pose a material risk to financial stability, but it could amplify known vulnerabilities, such as liquidity mismatch and leverage, if it grows a lot. In a note from April 2026, the IMF states that, without adequate institutional and policy anchors, tokenization risks amplifying financial instability through speed, concentration and fragmentation (IMF, Tokenized Finance, April 2026).

An example to make it stick

Imagine, as a hypothetical exercise, a token that gives the right to a fraction of the rent from a commercial office. Here is what changes and what does not:

Situation	Does tokenization help?
Recording who is entitled to each fraction	Yes, it can make the record faster and traceable
Transferring the fraction to another person	Yes, if the platform and the law recognize the transfer
The office sits empty for six months	No; income falls just the same
The tenant stops paying	No; collection follows the rules of the lease
The company that structured the deal goes bankrupt	No; it depends on how the right was legally protected
Finding a buyer for your fraction	Not necessarily; it depends on there being demand
A smart contract bug freezes payments	This risk exists only because of the technology

Questions before buying a tokenized asset

• What is the reference asset and what is its risk, without the technology?
• Against whom is my right, and what happens if that company goes bankrupt?
• Which record is legally valid: the blockchain or a traditional register?
• Who holds the real asset and who holds the token?
• Is there a real secondary market, with volume, or only the promise of one?
• Has the smart contract been audited, and who is liable if it fails?
• Is the offering under any regulator?

Promises of guaranteed returns, pressure to decide quickly and the use of government agency names to look official are classic warning signs. See how to recognize them in crypto scams: how to spot and report them. As with any risky investment, it is possible to lose the entire amount invested.

What to take from this article

• Tokenization changes how an asset is recorded, transferred, fractionalized and programmed. It does not change the asset’s economic risk or the soundness of its issuer.
• International reports converge: known risks still apply, legal uncertainty about what the token represents is real and promised liquidity does not always materialize.
• Evaluate a tokenized asset as you would evaluate the original asset, and then add the technology risks.