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Home»BLOCKCHAIN NEWS»Bank of England warns tokenizing blockchain assets could increase systemic risk
BLOCKCHAIN NEWS

Bank of England warns tokenizing blockchain assets could increase systemic risk

By Crypto FlexsDecember 7, 20232 Mins Read
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Bank of England warns tokenizing blockchain assets could increase systemic risk
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The Bank of England’s Financial Stability Report highlights the potential risks and growing interest in asset tokenization within the financial sector and highlights the need for global regulatory coordination.

The report notes an increasingly positive response among banks to leverage cryptography technologies, including programmable ledgers and smart contracts, for the tokenization of money and real-world assets.

Sarah Breeden presents key findings from the Financial Stability Report showing that the outlook for global economic growth remains uncertain. However, the Bank of England remains resilient and strong enough to continue to support households and businesses. https://t.co/oZoGXYozgq pic.twitter.com/vmc8Gv3Qny

— Bank of England (@bankofengland) December 6, 2023

Tokenization, defined as the issuance of digital asset representations, is rapidly gaining traction in the cryptocurrency ecosystem and is expected to develop into a $10 trillion market by 2030, according to asset management firm 21.co. This trend is evident in the move by major financial companies such as HSBC to enter digital asset custody services focused on tokenized securities. Societe Generale recently sold €10 million of tokenized green bonds on the Ethereum (ETH) blockchain.

But this growth trajectory raises concerns. A report from the Bank of England warned that “an increase in scale could pose risks to the wider financial environment”. The expansion “can increase the interconnectedness of markets for cryptocurrencies and traditional financial assets (since they appear on the same ledger) and create direct exposure to systemic institutions.”

The Bank of England recognizes the current limitations of these risks, emphasizing the need for continued vigilance and global regulatory cooperation. “International coordination can reduce the risk of cross-border leaks, regulatory arbitrage, and market fragmentation,” the report argues, echoing the sentiments of lawmakers supporting a coordinated regulatory approach to fund tokenization.

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