ESMA Sounds Alarm on Contagion Risk Between Traditional Finance and Crypto Markets
The European Securities and Markets Authority (ESMA) has issued a warning about the growing interconnections between traditional finance and crypto asset markets. The agency says that as the intersection between these two markets expands rapidly, the potential for shocks in one market to spread to the other is increasing.
According to ESMA's risk monitoring report released on October 10th, the growth of tokenized stock markets and decentralized finance (DeFi) hacking are representative risk factors. Tokenized stocks remain small in scale compared to global equity markets, but their rapid growth could accelerate the entry of new operators and trading infrastructure.
ESMA also expressed concern about crypto-based prediction markets, stating that detecting unfair trading practices such as insider trading, wash trading, and organized price manipulation could become significantly more complex if trading shifts on-chain.