European Regulator Flags Tokenized Stocks, Stresses Need for Safeguards

By Callan Quinn

The European Union’s top markets regulator is calling for a balance between financial innovation and investor protection, as tokenization—the digital representation of financial instruments on distributed ledgers—continues to garner interest across global markets.

Natasha Cazenave, executive director of the European Securities and Markets Authority, said Monday the shift in financial markets, driven by distributed ledger technology, holds promise but demands safeguards.

“Tokenization … could lead to a transformational change of our markets,” she said. “For regulators and policymakers, the priority must be to ensure that such innovation develops within a framework that safeguards investors' interests and preserves financial stability.”

Jakob Kronbichler, CEO and co-founder of Clearpool, told Decrypt that while Europe isn’t being left behind on tokenisation, the picture is uneven across regions.

“The EU leads in tokenised bonds under the DLT Pilot, while the U.S. is ahead on tokenised funds. That’s partly because the U.S. is allowing for more experimentation and innovation, attracting many of the builders, whilst Europe is taking more of a cautious approach,” he said.

“The UK’s Digital Securities Sandbox is pushing real-world trading and settlement experiments, Singapore is scaling regulated pilots under Project Guardian, and the Middle East is using sandboxes to attract global issuers.”

He believes for Europe the opportunity lies in making the DLT Pilot permanent, clarifying how existing securities rules apply on-chain, and enabling wholesale settlement—whether through a wholesale digital euro or bridges to the ECB’s TARGET payment and settlement system.

“That combination would let tokenisation scale safely without weakening investor protection,” he added.

Liquifi’s head of sales, Justin d’Anethan, told Decrypt that while ESMA’s speech is encouraging and says all the right things, including the fact that “tokenised stocks” today are synthetic exposures without shareholder rights, ESMA says it wants to encourage innovation but hasn’t done much yet.

“I feel like Europe might get lost in preparing to do things in the best way, while other jurisdictions accept some imperfection but have actually started doing things,” he said

“There are plenty of examples of both platforms and products that are available elsewhere, for better or worse, but not in Europe. The idea, of course, is to clarify the infrastructure and regulations concerning those players and assets, and protect users, but it also means potentially losing out on economic growth and technological relevance.”

Europe already accounts for more than half of global tokenized fixed-income issuance, which tripled last year to €3 billion ($3.5 billion), according to industry figures.

The global tokenized assets market is estimated to be approximately $600 billion, with growth expected in the years ahead.

In Germany, the finance ministry has piloted digital bonds, while France’s Societe Generale and Spain’s Santander pioneered security tokens for covered bonds as early as 2019. The European Investment Bank issued a digital bond on the Luxembourg Stock Exchange in 2022.

Other jurisdictions are also moving quickly. In the U.S., the first SEC-registered tokenized money market fund launched in 2021. Tokenized funds have surged 80% this year, now representing approximately $7 billion in assets under management.

Tech firms are entering, too. Google recently unveiled an institutional-grade ledger designed to support tokenisation and real-time settlement, underlining how mainstream the trend is becoming.

Other projects have been more controversial. 

Robinhood came under fire in July for offering “tokenized stock” in companies like SpaceX and OpenAI. It resulted in backlash from OpenAI, which said on X that it “did not partner with Robinhood, was not involved in this, and does not endorse it.”

Most initiatives remain small, illiquid, and experimental, according to Cazanave. Many tokenised equities, for instance, are structured as derivatives rather than direct shareholdings, raising concerns about investor misunderstanding. 

“If structured as synthetic claims rather than direct ownership, this can create a specific risk of investor misunderstanding and underlines the need for clear communication and safeguards,” Cazenave said.

To manage the risks, Cazenave said the EU’s DLT Pilot Regime offered a regulatory sandbox where market participants and supervisors could test approaches under controlled conditions.

ESMA has recommended amendments to make the pilot permanent and more flexible, tailoring thresholds and eligible assets to the risks of each business model.

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