The European Union’s securities watchdog has said tokenization has the potential to greatly transform markets and that the EU must ensure it keeps pace with developments in the United States and the United Kingdom.
Summary
- ESMA says tokenization key trend in the capital markets.
- The EU can tap into Markets in Crypto Assets regulation to keep pace with global trends in the space.
Natasha Cazenave, executive director of the European Securities and Markets Authority, shared this viewpoint in her keynote speech at the ‘Capital Markets in the Digital Age’ conference in Dubrovnik, Croatia.
The event, set to highlight the integration of new technologies such as artificial intelligence and cloud computing in capital markets, comes as another burgeoning sector quickly becomes a significant part of global markets.
According to ESMA’s Cazenave, this key innovation is tokenization, an aspect of the market that could reshape both access and participation in capital markets.
Real-world assets launched onchain so far show that tokenization has the capacity not only to broaden access but also to cut issuance costs, as it enables faster and more efficient secondary trading.
However, challenges persist, including illiquidity and interoperability. Another is regulatory clarity.
“This is not just a technological evolution. It could lead to a transformational change of our markets. With the right legal framework, it can contribute to the goals of the SIU by improving interoperability, transparency and cross-border efficiency. It can also cut costs for businesses by embedding compliance and reporting obligations directly into digital assets, while giving supervisors tools for real-time oversight.”
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ESMA seeks real-time oversight
The tokenized assets space has already seen an explosion of initiatives aimed at bringing assets to the blockchain, and ESMA believes the EU can tap into the Markets in Crypto-Assets Regulation to protect investors as well as keep pace with the U.S. and U.K., among other jurisdictions.
Commenting on the asset tokenization trend, the ESMA exec noted:
With crypto platforms like Coinbase and Kraken, and broker Robinhood, at the forefront of tokenization with tokenized stocks, and asset managers like BlackRock and Fidelity already big players, the nascent market, which sits around $600 billion, is forecast to see exponential growth. Government adoption is also on the rise.
The EU market represented more than 50% of the tokenized fixed-income instruments that launched onchain in 2024, Cazenave pointed out.
While the EU looks to scale tokenization, it is important regulators and other players move in tandem with the U.K. and U.S., the latter working on a roadmap recommended by the President’s Working Group on Digital Assets.
But with tokenized assets relying on the same underlying technology, EU regulators already have an “understanding of the risks and legal uncertainties.” Policymakers can capitalize on this knowledge to keep pace with other tier-one regulatory jurisdictions.
“Given the speed at which the market is expected to grow it will be important to keep pace and agree swiftly on the way forward,” she noted.
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