The European Securities and Markets Authority (ESMA) has published a new risk monitoring report highlighting the rapid growth potential of tokenized assets. According to research cited in the report from Boston Consulting Group and Ripple, the market could expand from approximately $600 billion in 2025 to $18.9 trillion by 2033, representing a compound annual growth rate above 40%. However, ESMA cautions that the technology introduces new operational and technological risks that need careful management.
Why ESMA Is Focusing on Tokenisation
Tokenisation, the process of representing financial assets on blockchain infrastructure, is attracting growing interest from financial institutions and regulators. Applications such as programmable money, real-time settlement, and direct distribution of financial instruments could fundamentally change how securities are issued, traded, and settled. Yet ESMA notes that while tokenisation does not alter the fundamental nature of underlying assets, it adds new layers of operational and infrastructure risk. The International Securities Services Association (ISSA) research in the report finds that blockchain-based systems could improve automation and transaction speed, enabling real-time or atomic settlement that reduces counterparty risk and shortens settlement cycles. Smart contracts can automate reconciliation and manual verification processes that currently require multiple intermediaries. Moreover, tokenising collateral could reduce settlement failures by about 13% and generate roughly $340 million in annual savings for large financial institutions.
Emerging Risks Identified by ESMA
Despite the efficiency gains, ESMA warns that tokenisation introduces technical vulnerabilities. Smart contracts may contain coding errors, digital wallets can become security targets, and blockchain networks may create dependencies on specific technology providers. Another concern is fragmentation: many tokenised assets are currently issued on private blockchains controlled by a limited group of participants, potentially recreating the market silos DLT was meant to eliminate. Interoperability between different blockchain systems remains limited without shared standards, restricting liquidity and reducing the benefits of broad adoption.
Regulatory Responses Across Markets
Regulators are building frameworks for tokenised financial infrastructure. The EU's Distributed Ledger Technology Pilot Regime, operational since March 2023, has authorised six DLT market infrastructures. The European Commission has proposed adjustments to support wider DLT use in EU financial markets. Outside the EU, the UK's FCA has consulted on tokenised fund proposals, while US authorities review how blockchain-based markets fit into existing frameworks. ESMA chair Verena Ross stated that disciplined risk monitoring and risk management remain essential to ensure orderly markets, especially given the potential for disorderly corrections that could spill over across markets. Early adoption is expected to focus on fixed income securities and money market funds where tokenisation can support collateral management and liquidity operations.