Associations in the exchange industry and global regulators are uniting to limit the growth and acceptance of tokenized stocks, asserting that these products do not equate to actual equities and pose considerable risks to investors.
As reported by Reuters, the European Securities and Markets Authority (ESMA), the International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges (WFE) have addressed a letter to the US Securities and Exchange Commission’s (SEC) Crypto Task Force, calling for tighter regulatory controls on tokenized stocks.
The groups contend that tokenized stocks “mimic” the equities they aim to represent, but lack the investor safeguards inherent in traditional markets.
“We are concerned about the sheer number of brokers and crypto-trading platforms offering or planning to offer so-called tokenized US stocks,” the WFE informed Reuters, refraining from naming specific firms or platforms. “These products are presented as stock tokens or equivalent to the stocks when they are not.”
Source: Jevgenijs Kazanins
The advocacy is significant given the stature of the signatories. EMSA is a European Union agency and one of the key financial supervisory authorities within the bloc.
IOSCO is an international organization that establishes standards for securities regulation and investor protection across global markets.
WFE, based in the UK, serves as an industry group representing exchanges and clearing houses worldwide.
This call for restrictions arises as tokenized securities gain momentum on Wall Street and elsewhere, propelled by the promises of enhanced efficiency, reduced costs, and wider market access through blockchain technology.
According to industry data, the value of tokenized assets has exceeded $26 billion.
Tokenized stocks — digital representations of traditional equities issued via blockchain — still account for a minor portion of that market, but their presence is anticipated to expand as leading platforms like Coinbase, Kraken, and Robinhood enter the arena.
Tokenized stocks comprise a small segment of the $26.5 billion tokenized securities market. Source: RWA.xyz
Related: The future of crypto in the Asia-Middle East corridor lies in permissioned scale
Lobby groups intensify efforts to impede crypto expansion
This is not the first occasion where traditional industry lobbies have united to hinder the advancement of blockchain innovation. While US lawmakers deliberated the GENIUS stablecoin legislation, banking groups successfully lobbied to exclude yield-bearing stablecoins — a characteristic that could directly compete with their offerings.
They ultimately succeeded, as GENIUS explicitly prohibited stablecoin issuers from paying interest to holders.
While the passage of GENIUS was largely viewed as a victory for the stablecoin sector, it also came with a cost. “By explicitly forbidding stablecoin issuers from providing yield, the GENIUS Act effectively safeguards a significant advantage for money market funds,” Temujin Louie, CEO of crosschain interoperability protocol Wanchain, stated to Cointelegraph.
Nonetheless, the SEC appears receptive to tokenization at the highest levels. In July, SEC Chair Paul Atkins referred to tokenization as an “innovation” that should be promoted within the US economy.
That same month, SEC Commissioner Hester Peirce emphasized that tokenized securities, including tokenized equities, must still adhere to existing securities laws.
Related: VC Roundup: Bitcoin DeFi surges, but tokenization and stablecoins gain momentum
