The European financial watchdog has issued a warning regarding the rising trend of tokenized stocks. According to ESMA, while tokenized assets are marketed as innovative investment products, many of them do not actually grant shareholders the same legal rights as traditional stockholders. This creates significant risks for retail and institutional investors who may mistakenly believe they are entitled to dividends, voting rights, or other corporate benefits.

Natasha Cazenave, Executive Director of ESMA, emphasized that tokenized stocks should not be confused with regulated securities. Instead, they often function more like synthetic financial products, where the underlying value may be linked to a company’s performance but without the legal framework that protects shareholders. As the tokenization trend grows, regulators are becoming increasingly concerned about investor protection and transparency in this emerging market.

One of the main risks highlighted by ESMA is the lack of clarity in ownership rights. Traditional shareholders have legal claims over a company’s assets and decisions, whereas token holders often do not. This can leave investors exposed to fraud, misrepresentation, or simply a lack of recourse in case of disputes. The absence of proper governance frameworks could also undermine confidence in the broader adoption of blockchain-based financial instruments.

Despite these warnings, tokenized stocks continue to attract interest due to their accessibility and ease of trading on blockchain platforms. However, ESMA urges investors to carefully review the terms and conditions of such products before investing. Regulators across Europe are expected to increase scrutiny and possibly implement stricter rules to ensure that tokenized financial instruments align with established investor protection standards.