Tokenization: ‘Transformational Change’ or Ticking Time Bomb?
0Asset tokenization
ESMA
Europe
Tokenization
Tokenization has accelerated across Europe, blending familiar assets with DLT and expanding issuance, while ESMA warned about ownership rights, settlement finality, and custody.
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Hassan Shittu
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Hassan Shittu
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Hassan, a Cryptonews.com journalist with 6+ years of experience in Web3 journalism, brings deep knowledge across Crypto, Web3 Gaming, NFTs, and Play-to-Earn sectors. His work has appeared in...
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Tokenization could fundamentally reshape Europe’s financial markets by combining familiar instruments with cutting-edge distributed ledger technology; however, regulators warn that the transition must be handled carefully to avoid unintended consequences.
Natasha Cazenave, Executive Director of ESMA, opened the Capital Markets in the Digital Age conference, highlighting the dual promise and risk of tokenization. She emphasized that the technology isn’t about inventing new assets; it’s about wrapping conventional instruments, such as bonds, equities, and fund units, in a digital layer.
Tokenized assets, once a niche segment, now comprise a global market of approximately $600 billion and are growing quickly. In 2024, the issuance of tokenized fixed-income instruments more than tripled to €3 billion, with Europe accounting for over half of this volume.
According to the 2025 Skynet RWA Security Report, the market for tokenized real-world assets (RWA) could expand to $16 trillion by 2030, and Europe has taken a leading role in this area.
Société Générale and Santander issued tokenized covered bonds in 2019, followed by the European Investment Bank’s digital bond launch on the Luxembourg Stock Exchange in 2022. Germany’s Ministry of Finance is also piloting state-backed tokenized sovereign debt.
However, Cazenave emphasized that most efforts remain limited in scale and fragmented, often executed as private placements with minimal liquidity or interoperability.
Cazenave noted that benefits such as 24/7 availability, reduced costs, and real-time execution are attractive, especially for post-trade efficiency. Still, without proper investor protections, tokenization risks becoming a “ticking time bomb,” with ownership rights, settlement finality, and custody raising major legal questions.
European Regulation on Tokenization in the Spotlight: DLT Pilots, MiCA, and the Settlement Gap.
As tokenization transitions from pilot to real-world deployment, Cazenave urged EU policymakers to coordinate internationally, particularly with bodies such as IOSCO and the FSB, to prevent fragmented regulation.
Tokenization’s future hinges on bridging innovation with oversight. “If tokenization is to scale safely, regulatory clarity from the start is essential,” Cazenave noted.
Cazenave mentioned the EU’s DLT Pilot Regime, a sandbox that allows participants to test tokenized trading and settlement under temporary exemptions. She noted that ESMA’s feedback report highlighted critical gaps in the existing framework, including the lack of alignment between MiFID II, CSDR, and settlement finality rules, as well as the mechanics of DLT.
ESMA has proposed making the pilot permanent and allowing flexible thresholds and asset eligibility for different business models.
She also praised the newly implemented Markets in Crypto-Assets Regulation (MiCA) for laying...
https://cryptonews.com/news/tokenization-transformational-change-or-ticking-time-bomb-european-regulator-weighs-in/
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