In This Article
Quick Highlights
- Tokenization could revolution financial markets but demands clear regulation.
- Tokenized shares may confuse investors if structured as synthetic claims.
- Tech firms are actively experimenting with blockchain-based settlements.
Introduction
The European Securities and Markets Authority (ESMA) has urged caution in the fast-growing tokenized asset market, currently valued at approximately $600 billion. In a recent letter, ESMA Executive Director Natacha Cazenave emphasized that tokenization has the potential to fundamentally transform financial markets but requires robust rules and investor safeguards.
Tokenization: Transforming Financial Markets
Cazenave explained, "Tokenization has the potential to be transformative in our markets. It must be a priority for regulators and policymakers to ensure that such innovations are developed within a framework that protects investors and preserves financial stability."
Europe represented over half of the global tokenized debt market in 2024, growing threefold to €3 billion ($3.5 billion), including digital bonds trialed by the German Finance Ministry, covered bond tokens from Societe Generale and Santander, and a digital bond from the European Investment Bank listed on the Luxembourg Stock Exchange in 2022.
Tokenized Shares: Risks and Opportunities
Cazenave highlighted transparency concerns with tokenized shares. "If this is structured as synthetic claims rather than direct ownership, this could create a particular risk of misunderstanding by investors and could highlight the need for clear communication and safeguards," she said.
To manage risks, ESMA introduced the DLT Pilot Regime, a regulatory "sandbox" allowing companies to test blockchain trading and settlement systems. The authority has proposed making this regime permanent and more adaptable to various business models.
Other jurisdictions are also advancing tokenization. In the U.S., the first tokenized money market fund registered with the Securities and Exchange Commission appeared in 2021. By 2025, tokenized funds grew 80%, reaching $7 billion in assets under management. Analytical platform Token Terminal reported a record $270 billion in tokenized assets under management.
Tech Firms Join the Tokenization Trend
Major tech companies are entering the space. Google unveiled an institutional distributed ledger for tokenization and real-time settlement. In March 2025, CME Group and Google Cloud tested a solution for asset tokenization.
However, some initiatives faced criticism. Robinhood drew backlash for offering tokenized shares of SpaceX and OpenAI. Elon Musk called the tools "fake."
The Path Forward
ESMA continues to monitor the pilot regime, focusing on trading, storage, and investor protection compliance. Cazenave noted, "Since a wholesale digital euro is not yet available, the DLT pilot program took a pragmatic approach by allowing settlements in tokenized commercial bank money and e-money tokens. Only integration with a digital euro will finally cement tokenization in the financial system."
In July, the European Central Bank unveiled a plan to implement DLT for settlements in central bank money, highlighting the Appia and Pontes initiatives.
Regulatory Challenges and Market Adaptation
Experts note that tokenization will require continuous updates to regulatory frameworks to ensure both innovation and investor safety. Financial institutions must adapt infrastructure, particularly payment and settlement systems, to fully leverage blockchain technology.
As tokenized assets gain popularity, educating investors about potential risks and the mechanics of tokenized shares becomes essential. Clear communication, transparency, and robust safeguards are key to sustainable growth in this sector.
