The World Federation of Exchanges (WFE) has called on financial regulators to tighten oversight of tokenized stocks, warning that the products could expose investors to hidden risks and undermine trust in traditional markets.

Reuters reported on Aug. 25 that WFE warned that tokenized equities replicate the appearance of stocks without conferring the same rights or protections that shareholders typically receive.

Unlike conventional shares, tokenized versions allow investors to gain synthetic exposure to a company’s performance without holding legal ownership.

The WFE said this marketing approach risks confusing retail investors, who may assume they hold voting or dividend rights when they do not. If these products fail, the group cautioned, the reputational fallout could extend to listed companies, damaging broader market integrity.

The WFE urged regulators to expand securities laws to cover tokenized assets to prevent such outcomes. It recommended clarifying rules around ownership and custody while restricting the promotion of these instruments as “stock equivalents.”

The industry body outlined its concerns about the fast-growing sector in a letter to the US Securities and Exchange Commission, the European Securities and Markets Authority (ESMA), and the International Organization of Securities Commissions (IOSCO).

Tokenized stock rises

The WFE’s intervention comes when tokenized equities are gaining momentum across both crypto-native and mainstream platforms.

Over the past months, prominent crypto trading platforms like Robinhood, Kraken, and Gemini have rolled out tokenized versions of U.S.-traded stocks, offering retail users new ways to gain exposure outside traditional brokerage channels.

That rapid surge in adoption has attracted significant bullish forecasts, with Binance Research estimating that the sector could reach a $1.3 trillion market capitalization if just 1% of global equities moved onto blockchains.

Despite this bullish forecast, tokenized stocks remain a fraction of that potential. Data from RWA.xyz shows the sector holding about $360 million in market capitalization, making it one of the smaller segments of real-world asset tokenization.

Nonetheless, its proponents point to the rising demand from retail and institutional investors as evidence that the market could scale quickly once regulatory clarity arrives.

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