Tokenized Stocks Pose Risk of Fragmented Liquidity, ESMA Warns

According to a recent report from the European Securities and Markets Authority (ESMA), tokenized stocks may lead to fragmented liquidity. This is because issuing different versions of the same stock can cause investors to hold multiple tokens, making it harder for them to trade.

ESMA's '2026 Half-Year Trends, Risks, and Vulnerabilities Report' highlights the growing connection between cryptocurrency and traditional finance, warning that this may pose risks. The report also notes that prediction markets in Europe are underdeveloped due to a lack of EU-issued licenses among major platforms.

While ESMA acknowledges some potential benefits of tokenization, such as increased efficiency and programmability, it questions whether these advantages can be fully realized within the current structure. Since ownership of underlying stocks is recorded off-chain, there is no single data source on-chain, and self-custody is only possible through indirect means between these structures.

Tokenized structures also introduce additional layers of intermediaries, leading to complexity and risk. Furthermore, settlement advantages are difficult to achieve, as even though token transfers occur on-chain, the cash portion of transactions typically settles separately via bank payment or other channels.