The European Securities and Markets Authority (ESMA) is advocating the need for investor protection amid the growing interest in tokenized assets, worth around $600 billion globally. During an address, ESMA's executive director, Natasha Cazenave, emphasized that the implementation of distributed ledger technology could significantly transform financial markets but requires a robust regulatory framework to secure investor interests. Europe currently leads in the issuance of tokenized fixed-income products, accounting for over half of the global issuance in 2024, with substantial growth in the sector last year. However, many tokenized equities operate as derivatives, which may lead to investor confusion about ownership structures. To mitigate these risks, the EU’s DLT Pilot Regime is set up as a regulatory sandbox to allow safe testing of new approaches. Cazenave has recommended making this pilot program permanent to enhance flexibility in addressing the specific risks associated with various business models. As tokenization continues to gain momentum, regulators aim to strike a balance between fostering innovation and protecting investors from potential pitfalls.

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