EU Regulator Warns Tokenized Stocks Could Mislead Investors

Natasha Cazenave, executive director at the European Securities and Markets Authority (ESMA), told a conference in Dubrovnik that some financial tech firms are marketing blockchain‐based “stock tokens” which mirror the price of a share without conferring any voting or dividend rights.

"These tokenized instruments can provide always on access and fractionalisation but typically do not confer shareholder rights," she said, in a speech later published on the ESMA website. If structured as a claim that is artificial rather than direct ownership, they “create a specific risk of investor misunderstanding and underline the need for clear communication and safeguards.”

Cazenave noted that tokenized equities currently remain small and illiquid, with most issued via private placements yet the market is expanding fast — tokenized assets are already worth around USD 600 billion.

Watchful eye

ESMA’s intervention comes as exchanges such as Robinhood and Coinbase roll out tokenized stock trading in the European Union. These products promise 24/7 trading and fractional ownership, appealing to younger investors seeking exposure to big names without buying a whole share.

But regulators worry that investors may mistake the tokens for actual equity and assume they hold the same legal rights and protections as traditional investors. The World Federation of Exchanges recently called for regulators to clamp down on stock tokens, warning they could undermine market integrity.

Silver lining

Cazenave said tokenization could make markets run more efficiently by building compliance rules directly into digital assets and allowing trades to settle instantly. But she warned that regulators need to make sure innovation happens with rules that protect investors and keep the financial system stable.

As tokenization “moves beyond experimentation,” she said, “European policymakers must ensure its orderly adoption and preserve financial stability.”

What next?

ESMA’s warning underscores the regulatory approach that is studying a new class of crypto products that merge securities and tokens. The absence of shareholder rights in tokenized stocks means they are closer to derivatives than equities, a position which has already begun shaping the US government’s designs on digital asset regulation.

As tokenization expands into stocks, bonds and funds, expect regulators, at least in Europe to insist on clearer disclosure and perhaps require issuers to hold licences akin to traditional broker dealers.