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.
Europe’s securities regulator has warned that growing links between crypto and traditional finance could increase the risk of shocks spreading across the broader financial system.
In its latest risk monitoring report published Thursday, the European Securities and Markets Authority (ESMA) called for closer monitoring of the “growing linkage between increasingly vulnerable crypto-asset markets and the broader financial system.” ESMA pointed to growing adoption of tokenized equities and recent decentralized finance (DeFi) exploits as areas that could deepen links between crypto and traditional markets and increase the potential for financial spillovers.
ESMA risk indicators for EU financial markets. Source: ESMA The regulator said tokenized equities remain negligible compared with global stock markets but are gaining traction, potentially introducing new participants and infrastructure that could reshape market structure.
ESMA also flagged prediction markets as an emerging risk, warning of heightened concerns around insider trading and market manipulation. The regulator said crypto use in prediction markets can make it harder to detect insider trading, wash trading and coordinated market manipulation.
Related: MiCA cracks down on USDT in Europe... but no one else cares ESMA’s warning comes as prediction markets face a growing regulatory battle in the United States over whether event contracts fall under federal derivatives law or state gambling rules.