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Crypto firms’ tokenized stocks spark investor protection concerns

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Crypto companies are racing to launch stock-backed tokens, but traditional financial firms and regulators are sounding alarms over potential risks to investors and market stability.

Encouraged by President Trump’s pro-crypto policies, major players such as Robinhood, Gemini, and Kraken have rolled out tokenized stock products in Europe, with Coinbase and Dinari seeking U.S. approval. Even Nasdaq has proposed offering tokenized shares — a sign that the concept is moving into mainstream finance.

These blockchain-based instruments are designed to mirror traditional equities while enabling 24/7 trading and instant settlement. Their combined market value has surged to $412 million from just a few million a year ago, according to RWA.xyz. But critics warn that many of these products lack ownership rights, dividends, and regulatory safeguards, making them more akin to derivatives than stocks.

“There’s a real risk investors don’t know what they’re buying,” said Diego Ballon Ossio, a partner at Clifford Chance. Legal experts say inconsistent rights and disclosures across issuers could undermine market integrity.

While some firms like Kraken and Ondo Finance claim to fully back their tokens with underlying assets, others — including Robinhood’s tokens pegged to OpenAI — have faced regulatory scrutiny for using derivative structures.

Regulators in both the U.S. and Europe are divided over how to classify and supervise these products. Financial groups including Citadel Securities and SIFMA argue that tokenization should not bypass investor protection rules, warning that liquidity could fragment across unregulated markets.

Sanctioned Rouble-Backed Crypto Firm Sponsors Major Singapore Conference as Token Use Soars

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A company behind a rouble-backed cryptocurrency sanctioned by the U.S. and U.K. appeared as a platinum sponsor at TOKEN2049, one of the world’s largest crypto conferences, held this week in Singapore—underscoring how sanctioned entities continue to operate in global crypto circles.

The firm, A7A5, is based in Kyrgyzstan and runs a stablecoin pegged to the Russian rouble, launched in January by a Russian defense-linked lender and a payments company. Western governments say it is part of a network helping Russia evade sanctions imposed after its 2022 invasion of Ukraine.

Despite being targeted by U.S. and British sanctions in August, A7A5 had a prominent booth at TOKEN2049, where it was initially listed among more than 20 platinum sponsors. Conference staff reportedly wore A7A5-branded shirts, and the company’s director of regulatory and overseas affairs, Oleg Ogienko, even spoke on stage.

Following Reuters inquiries, all references to A7A5 and Ogienko were removed from the event’s website by Thursday afternoon. TOKEN2049 organizers, registered in Hong Kong, did not respond to requests for comment.

Ogienko confirmed that the A7A5 operation in Singapore was part of the sanctioned group, saying: “We were sanctioned several times.” He insisted the company complies with Kyrgyz regulations and denied any role in money laundering. “We just applied for participation, and the organizers confirmed it,” he said.

According to blockchain analytics firm Elliptic, A7A5’s trading volumes have surged, with $70.8 billion transferred since January, up from $40 billion in July. Daily transaction counts have doubled in the past month, suggesting increasing adoption of the token for cross-border transactions.

Ogienko told Reuters the token is used by Russian firms and foreign trade partners, particularly in Asia, Africa, and Latin America—regions where Moscow continues to seek alternatives to Western financial systems. “Many countries who trade with Russia use our stablecoin,” he said. “These are billions of dollars.”

Neither Singapore nor Hong Kong has imposed sanctions on A7A5 or its affiliates, leaving local regulators with little obligation to restrict participation. Legal experts told Reuters that U.S. sanctions lack jurisdiction unless American individuals or institutions are directly involved.

The controversy highlights the difficulty Western authorities face in curbing crypto-based sanctions evasion, as decentralized systems and jurisdictional loopholes allow targeted entities to remain active in the global digital economy.

TOKEN2049, attended by over 25,000 participants, featured top industry figures including Donald Trump Jr., Cantor Fitzgerald chairman Brandon Lutnick, and executives from major crypto firms. Spokespeople for Trump Jr. and Cantor Fitzgerald did not comment.

As A7A5’s presence drew scrutiny, it served as a potent symbol of how geopolitics, regulation, and blockchain technology continue to collide in a financial world increasingly beyond traditional control.

EU Risk Watchdog Urges Swift Action on Stablecoin Safeguards

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The European Union’s financial risk watchdog has called for urgent safeguards on stablecoins that are only partially issued within the bloc, echoing growing concerns from the European Central Bank (ECB) about the potential for destabilizing financial runs.

Stablecoins — cryptocurrencies pegged to traditional reserve assets such as fiat currencies or commodities — are designed to maintain price stability. However, the European Systemic Risk Board (ESRB) warned that stablecoins issued both inside and outside the EU present inherent structural risks.

“Third-country multi-issuer schemes — with fungible stablecoins circulating both in the EU and abroad — have built-in vulnerabilities which require an urgent policy response,” the ESRB said in a statement.

RISK OF RUNS AND LIQUIDITY STRAINS

The ECB, led by Christine Lagarde, fears that if confidence in such stablecoins falters, investors could rush to redeem their holdings in the EU, where regulatory protections are strongest.
Such a scenario could lead to liquidity shortages, as EU-based reserves may be insufficient to cover redemptions — potentially forcing the ECB to intervene to stabilize markets.

Lagarde has consistently emphasized that stablecoin issuers operating in the EU and abroad must be held to identical standards, to prevent regulatory loopholes that could import external financial risk into the bloc.

REGULATORY GAPS AND POLICY IMPLICATIONS

Under the EU’s Markets in Crypto-Assets (MiCA) regulation — one of the world’s most comprehensive crypto frameworks — stablecoins are required to be fully backed by liquid reserves.
However, in “multi-issuer” arrangements, where an EU entity and a non-EU entity jointly issue a stablecoin, the stricter EU rules do not apply to the foreign partner. This creates regulatory asymmetry that may allow risk to flow into the EU system.

The ESRB warned that multi-function financial groups issuing stablecoins across jurisdictions may fall under more lenient regimes than traditional financial conglomerates, heightening the risk of divergent prudential standards and undermining the integrity of EU financial supervision.

A CALL FOR COORDINATED OVERSIGHT

The watchdog urged EU institutions to close these gaps quickly through policy coordination and international cooperation to ensure that global stablecoin systems do not exploit differences between regulatory frameworks.

The ESRB’s statement comes as the European Union prepares to implement MiCA fully by 2026, amid growing debate about how to integrate emerging crypto technologies into the region’s financial stability architecture without stifling innovation.