ESMA, IOSCO, and WFE rarely joined forces to pressure the SEC, directly pointing out that tokenized stocks fail to provide complete shareholder protection, exposing investment blind spots. (Background: Wall Street giant Citadel Securities waged war on tokenized U.S. stocks, sending a letter to the SEC: opposing the provision of innovative exemptions.) (Additional context: Robinhood revealed many private companies are preparing to issue 'tokenized U.S. stocks', CEO: Robinhood can meet the highest compliance standards) The European Securities and Markets Authority (ESMA), the International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges (WFE) jointly sent a rare warning letter to the U.S. Securities and Exchange Commission (SEC) on the 25th, cautioning about the significant risks associated with the emerging 'tokenized stocks'. This regulatory crackdown across the Atlantic sounds a loud alarm for the rapidly expanding $26 billion tokenized securities market. The digital shadow packaged as 'stocks' According to Reuters, regulators pointed out that tokenized stocks are merely a thin layer of blockchain covering, lacking the voting rights, dividend claims, and regulatory custody that traditional stocks provide. The WFE candidly stated: 'These products are marketed as stock tokens or equivalent to stocks, but that is not the case.' Exaggerated marketing leads to misplaced rights; if holders mistakenly believe they possess complete shareholder status, the risk will simultaneously amplify during legal unforeseen events. Behind the apparent trading convenience lie three layers of costs. First, legal substance is unclear: whether blockchain records can be equated with regulated securities custody remains a vast gray area. Second, shareholder rights are incomplete: token holders often cannot participate in shareholder meetings and may not receive dividends. Third, market order is fragile: a trading environment lacking centralized supervision is easy to manipulate, triggering a chain reaction that damages the reputation of the underlying companies. Despite this, market demand continues to grow robustly, with trading volume for tokenized stocks expected to surge by 26.6% to $360.5 million by 2025, although it still constitutes a small proportion of the overall tokenized securities market. As a result, regulatory bodies have chosen 'early precision strikes' to prevent ambiguous concepts from dragging down the traditional financial system as they scale up. SEC's innovation faction vs. protection faction The current situation for the SEC is not easy. Chairman Paul Atkins described tokenization last month as an 'innovation' that should be promoted, while fellow commissioner Hester Peirce insisted that digital securities still qualify as securities and must fully comply with existing regulations. Now, the collective pressure from European and international organizations is essentially demanding that the SEC mark the market boundaries with a brighter red line, especially concerning legal ownership, custody models, and sales literature. The SEC's cryptocurrency task force is attempting to balance 'not stifling innovation' with 'preventing systemic risks.' This time, global peers have made their stance clear, forcing the SEC to make a clearer choice between ideology and reality. Next steps: A turning point in digital asset regulation This joint letter is not just aimed at a single product but sets the frontline for the entire digital asset market. Without substantial regulatory support, even the most eye-catching technical packaging may turn out to be an empty shell. Investors, issuers, and platforms ignoring the gap between 'digital appearance' and 'legal substance' will find it difficult to protect themselves in future institutional restructuring. In the long history of tug-of-war between fintech and traditional regulations, every tightening of regulation seems to shackle innovation but is actually laying the foundation for sustainable market operations. Tokenized stocks are just one example among many innovative products; after the storm, what can truly remain are those technical solutions that can embed both efficiency and compliance. As this event demonstrates, the endpoint of the digital revolution is not complete decentralization, but finding a balanced middle path that can support trust, liquidity, and rule of law amid the repeated contest between regulation and the market.

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