European Watchdog Warns Investors About Tokenized Stocks

Tokenized stocks are multiplying on crypto platforms. But what are they really worth for investors? ESMA indeed fears a misunderstanding of these hybrid instruments. All the details below !

Why does ESMA point the finger at tokenized stocks?

The tokenized stocks are attracting more and more investor attention. Recently, Donald Trump even talked about them in one of his crypto projects.

Faced with the rise of these digital assets, ESMA’s executive director Natasha Cazenave warns. According to her, these crypto products can cause confusion between real ownership and synthetic exposure.

During an appearance in Dubrovnik, she reminded that these instruments confer neither voting rights nor dividends. The fact is that these crypto assets are often backed by traditional stocks through ad hoc entities.

Attracted by 24/7 accessibility and the possibility of fractional ownership, investors therefore risk believing in actual ownership when they only hold a derivative asset. This gray area raises a central question: what protections exist in case of dispute, insolvency, or misalignment with the underlying asset?

A promising crypto technology, but still limited

On the European authorities’ side, the approach remains nuanced. ESMA indeed recognizes the potential of tokenization:

• reduction of issuance costs ;
• broadened access to financial markets ;
• accelerated trading…

Since 2019, moreover, the European Commission has supported several pilot initiatives notably led by the EIB and the German Ministry of Finance.

But these crypto projects face structural limitations. Reference is made to the majority of tokenized securities circulating via private placements. These are often illiquid and non-interoperable between crypto platforms.

To advance, the EU has set up a blockchain pilot regime allowing companies to test products within a relaxed regulatory framework. The experience gained through this device, combined with lessons from the MiCA regulation, should allow building regulation adapted to the crypto environment.

Thus, tokenized stocks pose as many promises as questions. ESMA calls for vigilance, without slowing technological momentum.