ESMA Sounds Alarm on Growing Crypto-TradFi Links
The European Securities and Markets Authority (ESMA) has warned of rising links between crypto markets and traditional finance, citing vulnerabilities in digital-asset ecosystems that could contribute to wider financial-system shocks.
According to ESMA's risk monitoring report, the 'growing linkage' between increasingly vulnerable crypto-asset markets and the broader financial system is a concern, with new forms of market integration and specific activity potentially amplifying contagion risk.
The regulator highlighted tokenized equities as an area where connections between crypto and traditional markets are increasing, noting that while their global scale remains negligible relative to mainstream stock markets, even small segments can matter if they attract new participants and liquidity pathways shared with or linked to mainstream markets.
ESMA also pointed to decentralized finance (DeFi) exploits as a channel through which crypto disruptions could spill into the wider system, citing ongoing risks tied to these events that can trigger rapid losses, liquidations, and liquidity stress.