European regulators are sounding the alarm on tokenized stocks, warning that the fast-growing products may give buyers the illusion of owning company shares without providing any of the rights that come with them.
Natasha Cazenave, executive director at the European Securities and Markets Authority (ESMA), said many tokenized offerings in Europe are designed to mimic the price of listed companies but don’t provide shareholder rights such as voting power or dividends. She cautioned that retail investors could easily mistake these tokens for actual equity, creating what she called a “specific risk of misunderstanding.”
Behind the Tokens
Unlike traditional shares, tokenized stocks are typically issued through intermediaries or special-purpose vehicles, with the tokens tracking price movements rather than conferring ownership. While promoters emphasize features like 24/7 trading and fractional access, Cazenave stressed that the lack of real rights leaves investors with exposure but little protection.
Calls for Oversight
Her remarks follow similar concerns raised by the World Federation of Exchanges, which urged regulators to step in before tokenized equity products scale further. The group warned that weak oversight could erode market trust and damage financial stability if investors discover they never actually owned the assets they thought they did.
Innovation vs. Safeguards
Tokenization advocates argue that the technology can eventually cut costs and open new channels for trading everything from stocks to real estate. Cazenave acknowledged the potential but pointed out that most initiatives are still small, illiquid, and far from achieving the promised efficiency gains.
For now, the message from European regulators is clear: innovation won’t come at the expense of investor protection, and tokenized stock platforms expanding in the region — including those backed by major trading apps — will be closely watched.
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Alex is an experienced financial journalist and cryptocurrency enthusiast. With over 8 years of experience covering the crypto, blockchain, and fintech industries, he is well-versed in the complex and ever-evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His approach allows him to break down complex ideas into accessible and in-depth content. Follow his publications to stay up to date with the most important trends and topics.
Source: https://coindoo.com/eu-watchdog-tokenized-stocks-could-undermine-market-trust/