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.

Tokenization of real-world assets is still in its infancy and does not currently pose a significant systemic risk. However, the Central Bank of Russia warns that as the practice becomes widespread, it could bring critical risks, especially in terms of capital flows to unregulated segments and the exposure of traditional financial players to cryptocurrencies.

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

“The description of the object whose rights are validated by the tokenized real-world entity may contain errors or inaccuracies that could lead to incompatibility between the original entity and its digital representation.”

Bank of Russia

Moreover, risks associated with token asset tracking include the potential for double tokenization, where the same asset is tokenized on more than one blockchain.

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

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