Tokenized stocks are becoming popular as they allow investors to buy digital versions of traditional company shares. These tokens often mirror the price of real stocks but do not usually grant the same rights that come with direct ownership, such as voting power or dividends. This gap creates confusion, as many retail investors may wrongly believe they are buying genuine shares when in reality they are only trading a digital representation.
This growing concern was highlighted by Natasha Cazenave, the Executive Director of the European Securities and Markets Authority (ESMA). Speaking at a financial conference in Dubrovnik, she cautioned that tokenized stocks could easily mislead retail investors. Cazenave noted that while the products look like regular shares, they often lack the legal backing and protections tied to traditional stock ownership.
She explained that most of these tokens are issued through special-purpose vehicles, meaning they simply follow the market price of the stock without offering shareholder rights. This structure, she warned, risks creating a false sense of ownership among inexperienced investors. Cazenave called for clear communication from providers and stronger regulatory oversight to protect people from making costly mistakes.
Her remarks come as global financial groups are also voicing concerns. The World Federation of Exchanges has stressed that tokenized stocks pose risks to market trust if not properly regulated. With trading platforms like Robinhood, Coinbase, and Kraken entering the European market, watchdogs fear the problem could spread quickly.
While Cazenave acknowledged the potential of tokenization to modernize finance, she made it clear that current offerings remain limited, illiquid, and not yet able to deliver on their promises. Innovation, she argued, should not come at the expense of investor safety. For now, retail investors are advised to remain cautious and aware of what tokenized stocks truly represent.
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