IMF Warns Crypto Risks Could Trigger Financial Instability

Financial systems have typically evolved through a combination of innovation and crisis. It tends to go like this: New technologies promise efficiency, only for their risks to become apparent under stress. Over time, institutions, regulations and practices adapt.

Now, a growing body of research by global economists suggests digital assets and their underlying blockchain infrastructure may be entering that same cycle. And the findings are aligned around the risks that could come from integrating on-chain assets into the traditional financial system.

An April report from the International Monetary Fund (IMF), for example, argued that moving financial services and payments on-chain is not an incremental digitization but a “structural shift in financial architecture,” one that could inadvertently remove the frictions that currently prevent financial crises from spiraling.

The research does not reject financial blockchain technology’s potential. Instead, it underscores the importance of understanding its implications at a systemic level. In calm markets, crypto’s frictionless design can promise efficiency. In stressed markets, it may amplify instability.

And the IMF report is far from alone in its conclusions around the potential impact that bringing blockchains and digital assets into the traditional financial perimeter might have.

Across recent findings published by the U.S. Federal Reserve, the Financial Action Task Force (FATF), the European Central Bank (ECB), and other global institutions, researchers are showing themselves to be keen on highlighting crypto’s potentially systemic risks before any major and irreversible stresses end up proving their point.

See also: Stablecoins’ Shadow FX Market Is Becoming a Corporate Treasury Issue

Risks When Trust Moves From Institutions to Infrastructure

To understand the concern around crypto, it helps to start with what blockchain-based systems do exceptionally well: they compress time. Settlement that once took days happens in minutes or seconds as intermediaries that once layered verification and delay are replaced by automated protocols. As a result, liquidity can move globally, continuously, and with minimal human intervention.

A 2026 paper published by economists at the Federal Reserve Bank of New York titled “Stablecoin Disintermediation” studied how movement in stablecoin primary market activities is becoming associated with the intraday volatility of partner banks’ reserve balances, ultimately finding that stablecoins can transmit liquidity shocks to partner banks.

A separate report from the New York Fed, “Stablecoins vs. Tokenized Deposits: The Narrow Banking Debate Revisited,” found that, in contrast to stablecoins, tokenized bank-issued deposits can fund loans and investments, tying money creation to credit expansion.

That analysis reframed stablecoins and tokenized deposits not as competing payment tools but as instruments with fundamentally different balance sheet consequences. The choice between them affects liquidity strategy, counterparty exposure, and ultimately the cost and availability of credit across the economy.

The European Central Bank (ECB) has called for close oversight of stablecoins in its region, and the Reserve Bank of India Governor Sanjay Malhotra said in a speech last year that his organization — India’s central bank and banking regulator —  was “adopting a very cautious approach” toward cryptocurrencies, stablecoins included.

Elsewhere, the Financial Stability Board (FSB) in 2025 also announced plans to increase its focus on stablecoins, saying that they could pose risks in the global financial system.

Still, since the start of 2026, more systemically relevant global banks, like Morgan Stanley, have already entered the digital asset space.

See also: Stablecoin Pilots Keep Stalling on the Road to Scale

Scope of Risks Being Flagged

In traditional finance, settlement frictions due to delays, intermediaries, jurisdictional barriers and more, have often been framed as inefficiencies. But they also serve as circuit breakers. Payment lags give institutions time to assess exposures, clearinghouses absorb shocks and mutualize risk, all while regulatory boundaries help slow the transmission of stress across borders.

On-chain systems, by contrast, are designed to eliminate these features. Economists are now asking whether that coupling, while efficient, reduces the system’s ability to absorb shocks.

A March report from the FATF titled “Targeted Report on Stablecoins and Unhosted Wallets,” for example, highlighted the growing tension between the technology’s promise of frictionless global payments and the risks posed by an ecosystem that remains only partially regulated.

The PYMNTS Intelligence and Citi report “Chain Reaction: Regulatory Clarity as the Catalyst for Blockchain Adoption” found that blockchain’s next leap will be shaped by regulation; that evolving guidance is beginning to create the foundations for safe, scalable blockchain adoption. Still, the report found that implementation challenges continue to complicate blockchain’s institutional and systemic progress.