Tokenization could fundamentally reshape Europe’s financial markets by combining familiar instruments with cutting-edge distributed ledger technology; however, regulators warn that the transition must be handled carefully to avoid unintended consequences.
Natasha Cazenave, Executive Director of ESMA, opened the Capital Markets in the Digital Age conference, highlighting the dual promise and risk of tokenization. She emphasized that the technology isn’t about inventing new assets; it’s about wrapping conventional instruments, such as bonds, equities, and fund units, in a digital layer.
Tokenized assets, once a niche segment, now comprise a global market of approximately $600 billion and are growing quickly. In 2024, the issuance of tokenized fixed-income instruments more than tripled to €3 billion, with Europe accounting for over half of this volume.
According to the 2025 Skynet RWA Security Report, the market for tokenized real-world assets (RWA) could expand to $16 trillion by 2030, and Europe has taken a leading role in this area.
Société Générale and Santander issued tokenized covered bonds in 2019, followed by the European Investment Bank’s digital bond launch on the Luxembourg Stock Exchange in 2022. Germany’s Ministry of Finance is also piloting state-backed tokenized sovereign debt.
However, Cazenave emphasized that most efforts remain limited in scale and fragmented, often executed as private placements with minimal liquidity or interoperability.
Cazenave noted that benefits such as 24/7 availability, reduced costs, and real-time execution are attractive, especially for post-trade efficiency. Still, without proper investor protections, tokenization risks becoming a “ticking time bomb,” with ownership rights, settlement finality, and custody raising major legal questions.
European Regulation on Tokenization in the Spotlight: DLT Pilots, MiCA, and the Settlement Gap
As tokenization transitions from pilot to real-world deployment, Cazenave urged EU policymakers to coordinate internationally, particularly with bodies such as IOSCO and the FSB, to prevent fragmented regulation.
Tokenization’s future hinges on bridging innovation with oversight. “If tokenization is to scale safely, regulatory clarity from the start is essential,” Cazenave noted.
Cazenave mentioned the EU’s DLT Pilot Regime, a sandbox that allows participants to test tokenized trading and settlement under temporary exemptions. She noted that ESMA’s feedback report highlighted critical gaps in the existing framework, including the lack of alignment between MiFID II, CSDR, and settlement finality rules, as well as the mechanics of DLT.
ESMA has proposed making the pilot permanent and allowing flexible thresholds and asset eligibility for different business models.
She also praised the newly implemented Markets in Crypto-Assets Regulation (MiCA) for laying foundational clarity across crypto services. Still, tokenized securities, built on the same underlying technology, will require similar clarity and cohesion to scale safely.
Tokenization’s potential gains include efficiency improvements, 24/7 trading, and real-time execution. Yet settlement is currently based on commercial bank money, which is a fragile workaround until the digital euro becomes available.
Notably, European officials are moving faster on plans for a digital euro and are looking to launch on either the Ethereum or Solana blockchain by October.
However, till then, projects like the ECB’s Pontes (linking DLT platforms to TARGET Services) and Appia (integrating DLT ecosystems) are being developed to anchor tokenization within central bank infrastructure.
Conclusively, Cazenave warned that the shift from existing models to DLT involves fundamental changes, such as ownership, custody, and settlement structures, that must be adapted. She called for international regulatory coordination through forums such as IOSCO and the FSB to prevent fragmentation.
“The decisions we take now will help shape the future of financial markets in this digital age,” she concluded.
Europe, U.S., and Asia Jockey for Lead in the Tokenized Funds Market
As European regulators are working to clarify rules for tokenized funds, the drive for tokenization is now a global competition. Jurisdictions worldwide are exploring legal, technological, and investor considerations, with billions invested in tokenized products this year.
In the United States, the first SEC-registered tokenized money market fund went live in 2021. Since then, tokenized funds have grown almost 80% year-to-date, representing around $7 billion in assets under management.
SEC Chairman Paul Atkins conceded in an interview that “rules have not been clear” on digital assets but predicted an “imminent” boom in tokenization across asset classes.
Asia is moving equally fast. Hong Kong has made tokenized funds a pillar of its effort to reassert itself as a digital-asset hub, recently approving tokenized green bonds and launching retail-facing pilots.
Singapore, too, has leaned on its Project Guardian initiative, partnering with global banks to explore tokenized foreign exchange, bonds, and asset management products.
Japan’s Financial Services Agency has been working with domestic banks on blockchain-powered settlement for tokenized securities, showing that Asian financial centers view tokenization as both a market innovation and an opportunity to attract global capital.
Technology firms are now central players in this shift. Google recently unveiled an institutional-grade ledger to enable tokenization and real-time settlement, signaling that Big Tech intends to provide the infrastructure backbone for global adoption.
Not all rollouts have proceeded smoothly. In July, Robinhood faced criticism after offering tokenized equity in companies such as SpaceX and OpenAI, which both denied involvement.
Despite this, Robinhood continued to offer its tokenized stock in the EU. Kraken launched a similar product in June, excluding U.S. and EU customers. Coinbase is seeking regulatory approval for similar offerings, showing its competitive drive to secure an early market share.
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