The World Federation of Exchanges (WFE) has urged financial regulators to enhance scrutiny of tokenized stocks, cautioning that these instruments may pose concealed risks to investors and erode confidence in traditional markets.
Reuters reported on August 25 that WFE highlighted how tokenized equities mimic the visual attributes of stocks but do not provide the usual rights or protections that shareholders receive.
In contrast to traditional shares, tokenized alternatives enable investors to obtain synthetic exposure to a company’s performance without actual legal ownership.
The WFE expressed concern that this marketing tactic could mislead retail investors into believing they possess voting or dividend rights when they do not. The group warned that if these products were to fail, the reputational damage could extend to listed companies, thus harming overall market integrity.
The WFE called for regulators to strengthen securities laws to encompass tokenized assets to avert such risks. It suggested clarifying rules about ownership and custody, while also limiting the marketing of these instruments as “stock equivalents.”
The industry organization detailed its worries about this rapidly expanding sector in correspondence with the US Securities and Exchange Commission, the European Securities and Markets Authority (ESMA), and the International Organization of Securities Commissions (IOSCO).
Tokenized Stocks on the Rise
The WFE’s statement comes as tokenized equities are experiencing increasing traction on both crypto-specific and mainstream platforms.
Recently, major crypto trading services like Robinhood, Kraken, and Gemini have introduced tokenized variations of U.S.-listed stocks, providing retail users novel avenues for investment outside conventional brokerage frameworks.
This swift adoption has led to robust bullish predictions, with Binance Research estimating that this sector could achieve a $1.3 trillion market cap if merely 1% of global equities transitioned onto blockchains.
Despite this optimistic outlook, tokenized stocks currently represent only a small portion of this potential. Data from RWA.xyz indicates the sector has around $360 million in market capitalization, positioning it as one of the smaller segments within real-world asset tokenization.
Nevertheless, supporters highlight the growing demand from both retail and institutional investors as a sign that the market could expand rapidly once regulatory clarity is achieved.
