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    • 2 minutes read

    Are Tokenized Assets Safe? ESMA Director Cazenave Flags Investor Risks

    Story Highlights
    • ChatGPT said: ESMA warns many tokenized stocks mislead investors by lacking real shareholder rights.

    • The global tokenized assets market has surged to $600B, with Europe leading in adoption.

    • Regulators push for stricter safeguards as synthetic products spark controversy.

    Europeโ€™s top markets regulator is warning investors that some tokenized stocks may not be what they seem.

    Natasha Cazenave, Executive Director of the European Securities and Markets Authority (ESMA), is raising red flags.

    โ€œTokenizationโ€ฆ could lead to a transformational change of our markets,โ€ she said. โ€œFor regulators and policymakers, the priority must be to ensure that such innovation develops within a framework that safeguards investors’ interests and preserves financial stability.โ€

    Her warning comes as the global tokenized assets market hits $600 billion, with no signs of slowing down.

    โ€œFake Equityโ€ Concerns

    The main concern: many tokenized stock offerings arenโ€™t actual shares. Instead, theyโ€™re often synthetic products that donโ€™t provide shareholder rights like voting or dividends.

    โ€œIf structured as synthetic claims rather than direct ownership, this can create a specific risk of investor misunderstanding,โ€ Cazenave said.

    The issue made headlines in July when Robinhoodโ€™s tokenized stock offerings of SpaceX and OpenAI drew criticism, with Elon Musk labeling the products โ€œfake.โ€

    Europe Leads the Tokenization Push

    Europe is a growing player in tokenization. Fixed-income issuance on blockchain tripled last year to โ‚ฌ3 billion, with Germany, France, Spain, and the European Investment Bank experimenting with digital bonds.

    Meanwhile, the U.S. is ramping up its own efforts, with tokenized funds up 80% this year to $7 billion in assets under management.

    Tech players are joining too – Google recently launched a ledger platform for tokenization and real-time settlement, showing it moving into the mainstream.

    Testing, Sandboxes, and Next Steps

    To keep pace, the EU is using its DLT Pilot Regime, a sandbox for market players to test tokenization projects under supervision. ESMA has suggested making this framework permanent and more flexible, tailoring rules to the level of risk.

    Some in the crypto community argue that proper regulation could make tokenization even safer than traditional finance. As one X user wrote, โ€œReal tokenization should enhance protections, not weaken them.โ€

    The message is that innovation is welcome, but investor trust comes first.

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    FAQs

    What are “fake equity” tokenized stocks?

    They are synthetic products mimicking stocks without granting real ownership rights like voting or dividends, risking investor misunderstanding and potential losses.

    How large is the tokenized assets market?

    The global tokenized assets market has reached $600B, with fixed-income issuance on blockchain tripling to โ‚ฌ3B in Europe last year.

    Are tokenized stocks always risky?

    Not if properly structured. Real tokenization can enhance transparency and safety, but synthetic “fake equity” products lack traditional shareholder protections.

    Show More

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