Mainstream firms explore tokenization, while some Wall Street players remain cautious.
Crypto tokens tied to traditional financial assets could present new risks for investors, the global securities regulator IOSCO said today (Tuesday). The regulator highlighted concerns as the finance industry remains divided over the merits of “tokenization.”
Digital assets meet tradfi in London at the fmls25
While regulators warn of risks, interest in tokenization has grown this year, with products offered through online brokers. Traditional banks have also adopted blockchain-based tokenization, processing financial assets in hours, while similar processes on crypto platforms may take months. This highlights uneven adoption and efficiency across market participants.
IOSCO, which represents regulators covering almost all of the world’s securities markets, said most risks related to tokenization are already addressed by existing frameworks. However, the organization noted that the underlying technology may introduce new risks and vulnerabilities.
Tuang Lee Lim, chair of IOSCO’s board-level fintech taskforce, said that while adoption is still “limited,” tokenization could “reshape” the way financial assets are issued, traded, and serviced.
The regulator said different structures of tokenized assets could make investors unsure whether they own the underlying asset or only the crypto token. Third-party token issuers also create counterparty risks. IOSCO added that these concerns echo warnings from the European Union’s securities regulator in September.
“Tokenization could also suffer from potential spill-over effects from increased inter-linkages with the crypto asset markets,” IOSCO said.
Some mainstream financial firms, including Nasdaq, have been exploring tokenization. Other Wall Street players have expressed caution. While institutions have experimented with blockchain-based asset versions for years, IOSCO said actual adoption remains “limited.”
Supporters of tokenized assets argue that blockchain can reduce trading costs, speed up settlement, allow 24/7 trading, and attract younger investors. IOSCO, however, said that “efficiency gains are uneven” because market participants still rely on traditional infrastructure for trading.
