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

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As a seasoned crypto investor with a few battle scars to show for it, I’ve learned that every new frontier in this dynamic world comes with its own set of challenges and risks. The latest development, tokenized real-world assets, is no exception. While it presents exciting opportunities for diversification and increased liquidity, the Bank of Russia’s recent report highlights some legitimate concerns.

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

The process of converting real-world assets into digital form is still at a nascent stage and does not currently pose substantial systemic dangers. Nevertheless, as it becomes more widespread, it could potentially introduce serious risks, particularly in terms of financial flows to unregulated markets and the vulnerability of conventional financial institutions to cryptocurrencies, according to the Bank of Russia.

In a detailed 47-page study, the central bank clarified that tokenized assets are not immune to the dangers connected with their base real-world assets. Potential hazards like theft, damage, or loss during storage, transfer, or transaction can impact the collateral and subsequently the tokenized asset itself.

When it comes to an item whose ownership is verified through a token representing a physical asset, there might be mistakes or inconsistencies in the description, potentially causing a discrepancy between the actual asset and its digital counterpart.

The Bank of Russia

Additionally, I’ve noticed that one of the risks associated with managing token assets lies in the possibility of double tokenization. This happens when a single asset gets tokenized on more than one blockchain platform, potentially leading to confusion and disputes over ownership.

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.

The report emphasizes the advantages of converting tangible assets into digital tokens, but it also warns that the use of data providers, oracles, might impact the accuracy of pricing and quality details for these tokenized assets. Inaccuracies or inconsistencies in oracle data could potentially disrupt market stability, as some oracles operate beyond national regulations. So far, the amount of tangible asset tokenization remains minimal, particularly within the international financial sector, according to the central bank.

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2024-11-22 13:50