Global financial regulators and exchange associations are sounding the alarm on tokenized stocks, urging stricter oversight from the U.S. Securities and Exchange Commission (SEC) to address risks to investors.
The European Securities and Markets Authority (ESMA), the International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges (WFE) have jointly sent a letter to the SEC’s Crypto Task Force, calling for tighter regulation of tokenized stocks. These blockchain-based assets, designed to mirror traditional equities, are criticized for lacking the investor protections inherent in conventional markets.
“We are alarmed at the plethora of brokers and crypto-trading platforms offering or intending to offer so-called tokenized US stocks,” the WFE told Reuters. The group argues that these products, marketed as equivalent to stocks, do not provide shareholders with voting rights or other protections, potentially misleading investors.
The tokenized securities market, valued at $26.5 billion, has surged in popularity due to its promise of lower costs, faster settlement, and broader market access.
Platforms like Robinhood and Kraken have expanded tokenized stock offerings globally, while Coinbase is seeking SEC approval to introduce them in the U.S. However, SEC Commissioner Hester Peirce emphasized that tokenized securities must comply with existing securities laws, with no exemptions for blockchain-based assets.
The regulatory push carries significant weight, given the influence of ESMA, a key EU financial authority, IOSCO, a global standards-setter for securities regulation, and the WFE, representing exchanges worldwide. Their concerns center on misleading marketing, fragmented liquidity, and unclear custody frameworks, which could undermine investor trust and market stability.
ETHZilla’s Crypto-Fueled Buyback
In a separate development, ETHZilla, formerly 180 Life Sciences, has approved a $250 million share repurchase program, capitalizing on its recent pivot to a cryptocurrency-focused strategy. The company, which holds 102,237 ETH valued at approximately $489 million, spent over $403 million on Ether acquisitions at an average price of $3,948.72. ETHZilla’s stock price has surged following its rebrand, despite weak fundamentals, including a $141.5 million accumulated deficit last year.
The buyback, authorized for up to 165.4 million outstanding shares, reflects a broader trend of companies tapping crypto gains for liquidity. Firms like BitMine Immersion Technologies, The Ether Machine, and Ether Capital have similarly adopted crypto treasury strategies, holding roughly 3.4% of Ether’s total supply.
Analysts, however, warn of risks. Mike Foy of Amina Bank told Cointelegraph that crypto treasury strategies may be driven by short-term stock price boosts rather than long-term planning. Kadan Stadelmann of Komodo Platform highlighted leverage risks, noting that debt-financed crypto purchases could lead to forced liquidations in a bear market, potentially impacting Ether’s price.
Market Outlook
The tokenized securities market faces a critical juncture as regulatory scrutiny intensifies. While blockchain technology offers efficiency and accessibility, the lack of investor protections could slow adoption, particularly in the U.S. Meanwhile, crypto treasury strategies like ETHZilla’s highlight the growing intersection of traditional finance and digital assets, but leverage concerns underscore the need for cautious risk management.
As regulators and markets navigate these challenges, the balance between innovation and investor safety remains a key focus for 2025.
