Regulators warn that tokenized stocks lack proper investor protections, raising concerns over market risks.

Global financial bodies urge SEC oversight of tokenized stocks to prevent misleading marketing and investor harm.

While tokenized stocks grow, their regulatory gap sparks debates on balancing innovation with investor safeguards.

Regulators are increasingly alarmed by the increase in tokenized stock. Such digital assets could be regarded as a threat to investors since there is no adequate protection for them. The main financial institutions, such as the European Securities and Markets Authority (ESMA), the International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges (WFE), are demanding additional monitoring.

The three regulatory institutions, in response to their concerns, issued a letter to the SEC Crypto Task Force. According to them, tokenized stocks are less heavily regulated in terms of investor protection in comparison to conventional stocks. These products can be similar to stocks but without the legal protection of the established markets.

WFE Warns Tokenized Stocks Lack Equity Protections

The WFE warned that the increase in brokers and crypto platforms trading tokenized US stock was itself alarming. They insist that although these products are packaged as stock, they are not equity. The absence of any healthy regulation would expose the investors to enormous risk, the WFE said.

Also Read: Chainlink and ICE Partner to Unlock the Future of Tokenized Markets

These cautions are very weighty. ESMA is a powerful EU financial regulator, while IOSCO is the global regulator of securities standards. The WFE is a presentation of exchanges and clearing houses all over the world. Collectively, these institutions have great economic power in the international monetary markets. Their appeal to regulate them indicates that they are starting to worry about their potential hazards as tokenized stocks.

With these warning signs, however, the use of tokenized stocks is increasing quickly. Blockchain technology is touted as more efficient, less costly, and giving wider market access. The current issue is that the fractional ownership of stocks can be accomplished using tokenization to democratize access to institutional funds through traditional securities. With the advancement of technology, it is believed that this is the future of investing.

Tokenized Stocks Eye Growth Amid Regulatory Concerns

Nevertheless, the market volume of tokenized stocks remains isolated. The industry data gives an estimate of over $26 billion of the value of tokenized assets. Even tokenized stocks themselves are only a fraction of this total. However, mainstream exchanges are expanding into this area, potentially indicating expansion in the future, as large players Coinbase, Kraken, Robinhood, etc., start to move in.

Source: rwa.xyz

The issues voiced by the regulators are not novel. Conventional financial systems have always opposed blockchain innovation. During the discussion of the GENIUS Act, banks lobbied to exclude yield-bearing stablecoins. This would have had direct competition on their services, and to prevent this, the Act bans the issuers of the stablecoins from paying interest to their holders.

Nonetheless, it has been seen that the SEC has been receptive to developments in the blockchain. Chair Paul Atkins of the SEC called tokenization an innovation, and it may have some positive effects on the US economy. In July, SEC Commissioner Hester Peirce also expressed potential for tokenized securities but there should be compliance with current securities laws.

Also Read: BounceBit Adds Franklin Templeton’s Tokenized Money Market Fund for Capital-Efficient Yields

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Filed under: Bitcoin - @ August 26, 2025 6:30 am