Bank of Russia flags dual risk factors for real-world assets

The Bank of Russia warns that tokenized real-world assets pose new risks, including market volatility and regulatory challenges.

The tokenization of real-world assets remains in its early stages and currently poses no significant systemic risks. However, as the practice spreads, it may introduce critical risks, especially in capital flows to unregulated segments and the exposure of traditional financial players to cryptocurrencies, the Bank of Russia warns.

In a 47-page research report, the central bank explained that tokenized assets are not exempt from the risks associated with their underlying real-world assets. These risks, such as theft, damage, or loss during storage, transportation, or use, could affect the collateral and, in turn, the tokenized asset itself.

“The description of the object, the rights to which are certified by the tokenized real-world asset, may contain errors or inaccuracies that could lead to a mismatch between the original asset and its digital representation.”

The Bank of Russia

Moreover, risks related to token asset tracking include the potential for double tokenization, where the same asset is tokenized across multiple blockchains.

Despite the growing use of tokenized assets, liquidity risks remain a concern. For instance, as these assets are often tied to their underlying assets, any volatility or stress in token markets could trigger “mass investor actions,” potentially destabilizing both the tokenized and physical asset markets, the Bank of Russia notes.

While the report highlights the benefits of real-world asset tokenization, it also notes that the involvement of data providers, oracles, can undermine the reliability of pricing and quality information for tokenized assets. Manipulation or errors in oracle data could affect market stability, especially as some oracles are not subject to national regulations, the report reads. Thus far, the volume of tokenization of real-world assets is still small, especially in the context of the global financial industry, the central bank noted.