ESMA warns growing crypto ties could amplify risks to traditional finance
The EU securities regulator flagged tokenized equities, DeFi exploits and prediction markets as areas where growing crypto ties could pose risks to the broader financial system.
The European Securities and Markets Authority (ESMA) has expressed concerns that increased integration between cryptocurrency and traditional finance could heighten risks to the broader financial system. In its latest risk monitoring report, ESMA called for heightened scrutiny of the growing link between crypto-asset markets and the wider financial system.
The regulator highlighted areas such as tokenized equities, decentralized finance (DeFi) exploits, and prediction markets as potential sources of risk. While tokenized equities currently represent a small fraction of global stock markets, they are gaining traction and could introduce new participants and infrastructure that may reshape market structures.
ESMA also warned of heightened risks associated with prediction markets, citing challenges in detecting insider trading, wash trading, and coordinated market manipulation due to the opaque nature of crypto-based platforms.
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