Bank of Korea (BOK): “Asset Tokenization Is a Double-Edged Sword for Financial Markets; Laws and Regulations Must Be Clear”

[Financial News]  The Bank of Korea said a systematic response was needed because asset tokenization can integrate intermediary functions and improve efficiency while also creating new financial stability risks.
On the 8th, the BOK and the International Monetary Fund (IMF) held an event at the BOK’s headquarters in Jung-gu, Seoul, to present the report “The Expansion of Tokenization: New Efficiencies and Vulnerabilities.” The report was included in the IMF’s recently published Global Financial Stability Report (GFSR). 
The event brings the two institutions together to examine the opportunities and risks asset tokenization could bring to global financial markets and explore possible responses. With the government having announced a roadmap to institutionalize the issuance and distribution of tokenized securities, the BOK will step up work on Phase 2 of “Project Hangang,” based on deposit tokens, during the fourth quarter of this year.
BOK Deputy Governor Kwon Min-su said in the opening remarks that “to realize the potential benefits of tokenization, we need to take a balanced look at the new efficiencies and vulnerabilities it creates.” Kwon Min-su added, “Just as important as building fast and efficient financial infrastructure is putting in place soundness and safeguards capable of withstanding that speed, as well as a policy framework that can be activated in a timely manner.”
Tokenization involves recording financial assets or liabilities on a programmable distributed ledger, consolidating into a single system functions that multiple intermediaries previously performed separately. It has significant potential to reduce the need for transaction reconciliation and dramatically increase transparency and automation. According to the IMF, the market for tokenized real-world assets (RWA) had grown to $65 billion as of last July.
However, because of stronger network effects, tokenization systems have the characteristic that both benefits and risks grow as the number of assets, participants, and payment methods using distributed ledgers increases.
An analysis of tokenized stock markets found benefits such as round-the-clock trading and fractional ownership. But the markets’ small size meant they had lower liquidity and greater volatility and fragmentation than traditional markets.
If tokenization becomes widespread, it could create new channels that amplify traditional vulnerabilities such as liquidity, interconnectedness, and leverage. The possibility was also raised that technology- and infrastructure-related risks could increase.
The BOK said that easing key constraints in four areas—legal certainty, regulatory clarity, interoperability, and available settlement assets—would be crucial to the sustained growth of tokenized asset markets.
The BOK stressed that policymakers should pursue legislation that provides legal certainty and adopt a technology-neutral approach that removes unnecessary constraints to support the efficient and safe development of tokenized markets.
The BOK recommended that policymakers consistently apply the principle of “same activity, same risk, same regulation” and use policy sandboxes to help develop draft regulations.
It also said that, to safeguard financial stability as tokenization expands, the effects of atomic settlement, collateral reuse, and procyclical deleveraging on liquidity should be assessed and managed.
The BOK stressed that policymakers should strengthen monitoring of operational, governance, and infrastructure risks, as well as links with traditional financial markets, while putting circuit breakers and liquidity safeguards in place.
[email protected] Jeong Sang-gyun Reporter