ESMA Sounds Warning on Crypto-TradFi Linkages
The European Securities and Markets Authority (ESMA) has sounded an alarm about the growing connection between crypto markets and traditional finance. The regulator warns that vulnerabilities in digital-asset ecosystems could contribute to wider financial-system shocks.
According to ESMA, two key developments are deepening these connections: increased interest in tokenized equities and ongoing risks tied to decentralized finance (DeFi). Tokenized equities remain small globally but are gaining traction in Europe, potentially changing who participates and how markets are structured.
The report also highlights the growing use of prediction markets, which ESMA says can complicate detection of problematic conduct such as wash trading and coordinated manipulation. The regulator expressed concerns about insider trading and market manipulation in these markets.