The tendency of listed capital to flood in during favorable periods and withdraw at the first alarm, amplifying cycles instead of dampening them.
Procyclicality is the behavior of capital that reacts to market sentiment, flooding in when all is well and withdrawing when fear rises. Traditional reinsurance capital is patient, committed over long cycles, whereas tokenized capital, tradable in real time, is nervous, liable to flee at the first alarm. Yet insurance precisely needs capital that stays when the loss occurs, not that leaves at its approach. By importing into reinsurance the liquidity mechanisms of financial markets, tokenization also imports their instability, removing the protection the very illiquidity of the instruments used to provide.
It will have to be verified that the tokenized capacity gained in calm times is not paid for by capacity lost in crisis, precisely when it matters.
capital procyclique, capital nerveux