Before You Buy That Tokenized Stock, Here's What Global Regulators Say Could Go Wrong

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The global securities regulator just poured cold water on the tokenization hype, warning that blockchain-based tokens tied to traditional assets could expose investors to risks existing rules weren't designed to handle. Tokenization refers to turning real-world assets—like stocks or real estate—into digital tokens on a blockchain.

The International Organization of Securities Commissions released a report on Nov. 11 revealing that while most tokenization risks fall under current regulations, the underlying blockchain technology introduces fresh vulnerabilities that could catch investors off guard. For anyone betting on tokenized stocks, bonds or real estate, this marks a significant reality check.

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The Confusion Factor Could Cost You

Here’s the problem: investors might not actually know what they own when they buy a tokenized asset. The different structural approaches to tokenization mean you could think you’re holding the underlying stock or bond when you’re actually just clutching a crypto token with no direct claim to the asset.

“Although adoption remains limited, tokenization has the potential to reshape how financial assets are issued, traded, and serviced,” IOSCO Fintech Task Force Chair Tuang Lee Lim said in a statement.

Wall Street Remains Split on Whether This Works

The push into tokenization has created an unusual divide across financial institutions. Nasdaq (NASDAQ:NDAQ) is making aggressive moves into the space, betting that blockchain-based trading represents the inevitable evolution of markets.

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But other major Wall Street players aren’t convinced the juice is worth the squeeze. The efficiency gains that tokenization promoters promise—lower trading costs, faster settlement, round-the-clock trading—turn out to be “uneven” in practice, according to IOSCO.

The reason? Market participants still need traditional infrastructure for most trading processes. Blockchain doesn’t replace the existing plumbing, it just adds another layer on top of it. And that creates its own complications.

IOSCO said  in the report that issuers rarely provide clear, measurable evidence of the efficiency gains they claim—if those gains exist at all. Instead, much of the promised upside remains vague or unproven.

The Crypto Connection You Can’t Ignore

IOSCO's most troubling finding: tokenized assets expose investors to crypto-market volatility by creating deeper links between traditional and digital markets. That risk isn't hypothetical—it's built into the structure. Third-party token issuers also add counterparty risk absent in traditional securities. EU regulators raised similar red flags in September, showing this isn't just one watchdog overreacting.

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And the warning comes at a critical moment. Interest in tokenization has surged this year, with new products reaching retail investors through online brokers. As mainstream access expands, so does the potential for confusion—and losses.

What This Means for Your Portfolio

For investors considering tokenized products, IOSCO’s report delivers a clear message: buyer beware. The regulatory framework exists to handle most risks, but the technology introduces complications that traditional securities don’t have.

Before jumping into tokenized assets, investors need clear answers about what they’re actually buying, who controls the underlying asset, and what happens if the token issuer runs into trouble. Without that clarity, you’re making a bet on both the asset and the blockchain infrastructure supporting it.

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This article Before You Buy That Tokenized Stock, Here's What Global Regulators Say Could Go Wrong originally appeared on Benzinga.com