Systemic Risks of Sophisticated Financial Products: A Critical Review of Post-2008 Innovations and the Impacts on Global Markets
DOI:
https://doi.org/10.55578/jift.2504.001Keywords:
Financial Innovation , Systemic Risk, Sophisticated Financial Products, Tokenisation, Algorithmic Trading, Decentralised Finance (DeFi), Financial Regulation, Adaptive MarketsAbstract
This article provides a critical review of systemic risks arising from post-2008 financial innovation, with a focus on sophisticated instruments such as structured products, crypto derivatives and decentralised finance (DeFi). Drawing on recent theoretical developments and empirical insights, the study investigates how these products amplify market instability through leverage, interconnectivity and algorithmic reflexivity. The analysis criticises traditional regulatory frameworks, highlighting their limitations in addressing emerging risks and proposing a shift towards functional, risk-based governance. By consolidating fragmented academic and regulatory perspectives, the article offers a comprehensive conceptual synthesis of how modern financial engineering contributes to systemic vulnerabilities. It also identifies regulatory gaps, in areas such as programmable finance and synthetic tokenisation, that challenge current supervisory mechanisms. This analysis is intended to serve as a reference point for policymakers, researchers and financial institutions in the ongoing effort to mitigate systemic threats in increasingly digital and decentralised financial systems.
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