Record Wave of Tokenization: Mind the Risks
Exchange-traded funds (ETFs) tracking crypto assets drew record inflows of $5.95 billion globally last week, as strong demand for digital assets helped propel bitcoin to an all-time high. The wave of tokenization goes hand in hand with the investment inflows into digital assets. Traditional financial firms and regulatory experts warn of possible risks resulting from such a development.
The United States led with $5 billion in inflows into crypto ETFs, followed by Switzerland at $563 million and Germany at $312 million, both setting new records, Reuters cited the CoinShares´s data. Bitcoin attracted $3.55 billion, Ethereum $1.48 billion, while Solana and XRP drew $706.5 million and $219.4 million, respectively.
Bitcoin's ascent comes alongside a record rally in traditional safe haven gold, as a weakening
U.S. dollar amid trade uncertainty and economic concerns is pushing investors to diversify their portfolios. Deutsche Bank expects bitcoin to feature on most central banks' balance sheets, alongside gold, by 2030.
The cryptocurrency rally this year has been driven by more supportive policies under U.S. President Donald Trump, demand from institutional investors, and bitcoin's deepening integration with global financial markets.
Tokenization boom: transforming traditional finance
At the same time, the market is witnessing an unprecedented wave of tokenization — particularly related to stocks. Platforms like Robinhood, Gemini, or Kraken have launched tokenized stocks in Europe, while Coinbase, Robinhood, and startup Dinary are seeking approval to launch similar products in the United States. Meanwhile, Nasdaq became last month the first major exchange to propose offering tokenized shares, Reuters reported.
The industry says tokenized shares — blockchain-based instruments that track traditional equities — could revolutionize stock markets by allowing shares to be traded 24/7 and settled instantly, boosting liquidity and reducing transaction costs.
The combined value of tokenized public stocks geared toward retail investors as of September grew to $412 million, compared with just a few million dollars 12 months ago, according to RWA.xyz.
Regulation gap: a growing concern
Although many products are marketed like stocks, they rarely offer the same rights, disclosures, and protections as traditional equities. Instead, they more closely resemble riskier derivatives, according to Reuters.
The industry is divided over which regulations apply to stock tokens, and investor rights and protections vary. Often, the products provide no ownership, voting rights, or traditional dividends, while creating counterparty risk exposure to the token issuer.
In Europe, some issuers operate under MiFID derivatives rules, but legal experts warn that the framework may be insufficient to oversee these novel products. A spokesperson for the European Securities and Markets Authority (ESMA) said it was aware of the potential risks of tokenization and was monitoring developments.
The World Federation of Exchanges (WFE) recently urged regulators to tighten oversight, citing insufficient investor protections and liquidity fragmentation. In the U.S., issuers are in talks with the SEC about launching tokenized securities that would grant investors full legal rights and benefits associated with conventional stocks, while complying with securities laws and anti-money laundering protections, Reuters concluded.
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