EU Regulator Warns Tokenized Stocks May Mislead Investors
The European Union’s top securities watchdog has raised concerns over the potential risks of tokenized stocks and blockchain-based assets that provide exposure to equities, as reported by Reuters.
The European Securities and Markets Authority (ESMA) said such products could lead to “investor misunderstanding”, as they typically do not grant buyers any direct shareholder rights in the underlying company.
Tokenized stocks are blockchain-based assets linked to the price of publicly traded shares. Platforms such as Robinhood (HOOD.O) and Coinbase (COIN.O) have recently expanded into this sector in Europe, offering investors fractional exposure to listed equities.
At a conference in Dubrovnik, ESMA Executive Director Natasha Cazenave highlighted the growing trend of fintech firms launching products tied to stocks or derivatives backed by corporate equity held through special purpose vehicles.
“These tokenised instruments can provide always-on access and fractionalization but typically do not confer shareholder rights,” Cazenave said in a speech published on ESMA’s website.
“…this can create a specific risk of investor misunderstanding and underlines the need for clear communication and safeguards.”
ESMA’s warning comes just days after the World Federation of Exchanges (WFE) urged regulators to tighten oversight on tokenized stocks, warning that they pose new risks to investors and could undermine market integrity.
While crypto advocates argue that tokenisation could transform financial markets—enabling assets like stocks, bonds, funds, deposits, and real estate to be traded seamlessly on blockchain—Cazenave noted that the sector remains immature:
Tokenization could bring efficiency gains, but “most tokenization initiatives remain small and largely illiquid,” she said.
