Fed Confirms $25B Tokenization Surge, Flags DeFi Risks

Federal Reserve Governor Lisa Cook delivered a landmark speech on May 8, 2026, at the Central Bank of West African States Conference in Dakar, Senegal, addressing the rapid growth of tokenized assets in the United States. Cook confirmed that tokenized assets in the U.S. have more than doubled in market capitalization over the past year, reaching approximately $25 billion. While acknowledging significant opportunities for innovation, Cook also identified critical financial stability risks that regulators are monitoring as the sector scales.

The Tokenization Opportunity

Cook opened with measured enthusiasm for the technology, framing tokenization not as a threat to traditional finance but as an upgrade layer. “I do not see tokenization as replacing traditional market infrastructure,” she said. “The technology presents a tremendous opportunity for innovation in the sector.”

Cook highlighted specific institutional benefits already emerging in markets. Smart contracts enable automated settlement across multi-leg transactions, reducing the time gap between trading and settlement. Tokenized money market funds allow intraday investment and redemption, improving returns on idle cash. Repo transactions executed on-chain can provide same-day liquidity that overnight processes currently cannot match.

For emerging economies, Cook identified particular promise in programmable fractional ownership, which could open capital markets to investors with limited resources. She connected this directly to cross-border applications, noting that cross-border repo transactions combined with on-chain foreign exchange could unlock new funding strategies for institutions operating across currency zones.

Financial Stability Risks Under Watch

Cook identified two key financial stability considerations as tokenization scales. The first is liquidity transformation risk. Some tokenized assets can be redeemed on demand while their underlying assets remain less liquid, creating a mismatch that introduces run risk. Around-the-clock trading on public blockchains could accelerate stress events outside normal market hours, faster than traditional systems could respond.

The second risk is interconnectedness. As tokenized assets become collateral, liquidity instruments, and reserve assets simultaneously, shock transmission channels multiply. A problem in one corner of the digital asset ecosystem can ripple into traditional financial markets through multiple pathways at once. Cook also flagged DeFi-specific risks directly, noting that cyberattacks and smart contract vulnerabilities remain persistent threats. As automation increases, she noted, human ability to intervene and correct errors decreases.

Regulatory Framework and Path Forward

Cook’s speech signals that the Federal Reserve is monitoring tokenization seriously, not to shut it down but to understand how to let it scale safely. The Fed’s framework distinguishes clearly between directly issued on-chain assets and tokenized representations of conventional assets. Cook emphasized that building within the second category—where legal enforceability and existing regulatory frameworks apply—is where institutional adoption will accelerate fastest. According to Cook’s remarks, the Fed is not standing in the way of tokenization but is learning how to walk alongside it as the sector matures.