Regulators Sound Alarm on Crypto-Traditional Finance Links
The European Securities and Markets Authority (ESMA) has issued a warning about the growing links between the crypto market and traditional finance. As more people invest in tokenized stocks, decentralized finance (DeFi) hacks are becoming a major risk factor.
Tokenized stocks represent ownership or prices of conventional shares as blockchain-based tokens, but their scale remains small compared to global stock markets. However, adoption is rising quickly, and ESMA believes that inflows of new market participants and trading infrastructure could bring changes to existing financial market structures.
The warning also highlights the risks associated with prediction markets, where event contracts bet on the outcome of specific events such as sports and politics. Regulators are concerned about the possibility of insider trading and market manipulation, which could be harder to detect if cryptocurrencies are used for payments and trading.