Europe’s securities regulator is warning that the lines between crypto markets and traditional finance are getting thinner—and that this could make systemic shocks travel farther. In a new risk monitoring report, the European Securities and Markets Authority (ESMA) says the growing linkage between vulnerable crypto-asset markets and the wider financial system deserves closer watch.

ESMA’s report, published Thursday, highlights tokenized equities and ongoing decentralized finance (DeFi) vulnerabilities as key channels through which shocks could spill over. It also flags prediction markets as an emerging concern, citing risks around insider trading, wash trading, and coordinated manipulation—issues that may be harder to detect when crypto is involved.

Key takeaways

• ESMA warns that increasing connectivity between crypto and traditional finance could amplify the impact of financial shocks.
• Tokenized equities are still small in global terms, but ESMA says they are gaining traction and could change market structure over time.
• Recent DeFi exploits are viewed as a factor that may deepen crypto’s links to broader markets.
• Prediction markets face heightened regulatory scrutiny, with ESMA concerned that crypto involvement can obscure trading misconduct.
• In the US, an ongoing jurisdiction dispute over event contracts could ultimately reach the Supreme Court.

ESMA’s systemic-risk warning on crypto–traditional finance links

ESMA’s latest assessment focuses on the “growing linkage” between crypto-asset markets—described as increasingly vulnerable—and the broader financial system. The regulator argues that greater adoption of crypto-adjacent instruments can introduce new pathways for stress to move between sectors, potentially affecting market participants beyond the crypto ecosystem.

The report points to two developments in particular: the spread of tokenized equities and the continued problem of DeFi exploits. ESMA does not suggest tokenization has already reshaped global equities markets, but it emphasizes that momentum matters because infrastructure and participant behavior tend to evolve quickly once adoption takes hold.

Tokenized equities: still small, but becoming more consequential

ESMA says tokenized equities remain negligible compared with global stock markets. Still, it notes that the segment is gaining traction, with the possibility of drawing in new participants and building additional market infrastructure. That combination—more entities connected to more rails—can increase the complexity of market plumbing and raise the risk that problems elsewhere propagate into equity-linked products.

For investors and market operators, the practical takeaway is that “small today” does not necessarily mean “irrelevant tomorrow.” ESMA’s framing implies that regulators are watching early-stage adoption not only for fraud or conduct issues, but for how rapidly the market’s risk surface could change as participation broadens.

DeFi exploits as another spillover channel

Beyond tokenization, ESMA also highlights decentralized finance (DeFi) exploits as another factor that could strengthen the bond between crypto markets and the traditional system. While DeFi largely operates on its own rails, losses from hacks and vulnerabilities can still reverberate through liquidity conditions, counterpart risk, and sentiment—especially as some financial services and investors increasingly interact with crypto venues and products.

ESMA’s risk monitoring approach indicates that the regulator views these events not as isolated incidents but as part of a broader linkage story: shocks that start in crypto can gain traction if they affect liquidity, exposure, or cross-market positioning.

Prediction markets: tougher oversight, harder detection

ESMA also flagged prediction markets as an emerging risk area. The regulator warned of heightened concerns about insider trading and market manipulation. In particular, ESMA said crypto use in prediction markets can make it harder to detect behaviors such as insider trading, wash trading, and coordinated manipulation.

That caution matters because prediction markets are designed to reflect and trade on information about future events. If trading misconduct becomes harder to identify, regulators may face a steeper enforcement challenge—especially where on-chain activity and cross-border trading blur investigative boundaries.

ESMA’s warning arrives as prediction markets continue to face regulatory conflict in the United States. The dispute centers on whether “event contracts” should be treated as federal derivatives or fall under state gambling laws.

US jurisdiction fight over event contracts continues

In the US, the Commodity Futures Trading Commission (CFTC) has issued guidance for prediction markets throughout 2026 while maintaining what it says is exclusive jurisdiction over federally regulated event contracts. The agency has also pursued legal action against multiple states after authorities attempted to apply state gambling laws to prediction market operators.

Earlier coverage noted that the litigation includes efforts involving Kentucky, Minnesota, New Mexico, New York, Illinois, and Connecticut. The overall dispute could ultimately reach the US Supreme Court.

According to reporting in the broader US context, New Jersey officials petitioned the Supreme Court on September 2 to determine whether states can enforce sports gambling laws against prediction markets registered with the CFTC. The petition is described as referencing litigation spanning at least 20 states. Whether the Supreme Court will take up the issue remains unclear, but any ruling could reshape which regulatory regime governs event contracts nationwide.

What to watch next for EU and cross-border markets

ESMA’s report suggests regulators are preparing for a world where tokenized instruments, DeFi liquidity flows, and crypto-enabled market platforms could intersect more often. Investors and builders should watch how enforcement and surveillance capabilities evolve—especially around prediction markets—while US jurisdiction developments may further determine how participants design compliant products across borders. The key uncertainty remains the speed at which early crypto adoption turns into mainstream market infrastructure, and how regulators will manage systemic-risk spillovers as that happens.

Nasdaq has invested $100 million in Payward, the parent company of cryptocurrency exchange Kraken, as part of the New York electronic bourse’s expansion into tokenized assets.

Nasdaq’s venture arm made a $100 million investment in Payward, the exchange operator revealed in a Thursday announcement. As part of the deal, Kraken will offer tokenized versions of Nasdaq-listed stocks on its own platform. The investment builds on Nasdaq’s partnership with Payward announced in March.

Payward will also adopt Nasdaq’s surveillance technology across its crypto, equities, tokenized equities, futures and options venues, according to the announcement.

The investment valued Kraken’s parent company at $21 billion, people familiar with the matter told Bloomberg on Thursday. Cointelegraph approached Nasdaq for comment on the matter but did not receive a reply before publishing time.

The announcement comes a month after Nasdaq shared plans to acquire Level Markets as part of its push into “always-on” markets. Nasdaq filed a tokenization proposal with the US Securities and Exchange Commission a year ago. 

Earlier this month, Kraken partnered with the London Stock Exchange to launch access to 24/5 trading of tokenized stocks that are tracking the value of leading UK equity products starting in 2027.

In April, Deutsche Börse invested $200 million in Payward, as part of the German exchange operator’s plans to offer access to a wider array of blockchain-based securities and tokenized investment products.

Source: RWA.xyz

According to data compiled by RWA.xyz, the current distributed value of tokenized stocks is more than $2.9 billion, up 7.4% over the past month.

Related: AMC chief criticizes Robinhood’s tokenized stock plan

JAPAN

Metaplanet’s executive stock pool sparks shareholder backlash

Japanese Bitcoin treasury company Metaplanet’s executive stock pool continues to draw shareholder backlash over stock dilution concerns. 

Multiple shareholders objected across social media to Metaplanet’s 10th Series executive option pool, which was designed as 20% of fully diluted shares and automatically expanded as the company issued new shares to fund its Bitcoin (BTC) accumulation.

Some shareholders are now asking Metaplanet to cancel the additional 273 million shares created from the changes and to provide more transparency on future decisions.

Bitcoin Magazine CEO David Bailey defended Metaplanet and said that giving the team 20% of the cap table over five years “isn’t some crazy number” but many shareholders disagree.

Citi plans fast cross-border blockchain payments

Citi plans to offer Japanese companies near-instant international payments through blockchain-based infrastructure, including outside standard banking hours.

SE ASIA

Singapore takes the lead as SE Asia funding doubles to $680 million

Investment in south east asian crypto firms doubled between 2025 and 2026, with the region recording 25 funding rounds worth $680 million in 2026. That’s up from just 319 million according to private market data platform Tracxn. Unfortunately the figures mean more funds are going to fewer companies, as there were 46 funding rounds last year.

Singapore has taken out the number one spot as Asia’s preeminent crypto hub, and is home to 2,285 of the 3,957 blockchain companies in the entire region. It has also accounted for 82.5% of all time blockchain equity funding tracked across the region.

US sanctions Xinbi scam marketplace

United States authorities restrained more than $52 million in crypto linked to scam marketplace Xinbi Guarantee and its vendor network as part of a coordinated operation. 

The US Justice Department said its Scam Center Strike Force seized two wallets used by Xinbi to collect vendor payments containing about $12 million. Law enforcement also sought restraints against 47 additional wallets believed to be connected to money laundering across Xinbi’s network. 

The Office of Foreign Assets Control (OFAC) designated Xinbi as a significant transnational criminal organization. OFAC also sanctioned Singapore-based SafeW Technology and Cambodia-based Anwen Technology for allegedly providing technological and financial support to Xinbi. 

SINGAPORE

Gemini receives Singapore payment license for crypto services

Crypto exchange Gemini has received a Major Payment Institution (MPI) license from the Monetary Authority of Singapore (MAS), completing its transition from the in-principle approval granted nearly two years ago. 

MPI license holders can provide regulated payment services without the transaction-volume limits imposed on standard payment institutions.

Gemini President and co-founder Cameron Winklevoss said the exchange has served customers in Singapore since 2020, while CEO Tyler Winklevoss described the country as a strategic hub for serving retail and institutional clients.

Circle to buy Tazapay for $400M

USDC issuer Circle has agreed to pay $400 million to acquire Singapore based cross border payments company Tazapay, which has more than 60 bank and fintech partners across 100 different markets.

SOUTH KOREA

South Korean regulators introduce tokenized securities roadmap

South Korea’s Financial Services Commission (SFC) introduced a three-phase roadmap to develop infrastructure for tokenized securities issuance, for assets including stocks, bonds and funds.

Starting Feb. 4, 2027, tokenized securities will be legally recognized as digitized forms of securities after an update to the Act on Electronic Registration of Stocks and Bonds is scheduled to take effect.

The first phase will offer tokenized securities legal recognition, including for institutional money market funds, bonds, unlisted stocks and fractional investment securities. Phase two would expand tokenization to all publicly offered securities, while phase three aims for onchain payments linked to stablecoins.

Won stablecoins could save merchants $3.8 billion annually

South Korea’s National Assembly Budget Office says that won-denominated stablecoins could reduce South Korean merchants’ annual payment fees by between $275 million and $3.8 billion annually.

INDIA

India’s Arya.ag to put grain ownership records on Avalanche

Indian agricultural warehousing and lending company Arya.ag is testing a system to tokenize warehouse receipts for stored grain on a dedicated Avalanche layer-1 blockchain. 

Arya.ag is working with Finternet to connect grain deposits, warehouse receipts, collateral commitments and loan status through the network.

Devika Mittal, Ava Labs’ head of India, told Cointelegraph that testing was underway and said each tokenized receipt would represent ownership of the stored commodity. The companies did not disclose an expected launch date or how much grain or lending the initial deployment would cover.

India’s FIU cracks down on money laundering compliance

India’s Financial Intelligence Unit issued non-compliance notices to 15 offshore virtual digital-asset service providers for alleged AML failures. The agency also sought takedowns of relevant applications and URLs, accusing them of serving Indian customers without proper controls.

Indian crypto regulation to be discussed next week

India’s Finance Ministry is expected to appear before a parliamentary panel on September 16, with the discussion focused on the taxation and regulation of virtual digital assets.

THAILAND

Webull buys Pi Securities for $100M

Thailand’s Webull Securities has completed the acquisition of long established tradfi securities and investment services firm Pi Securities for $100 million.

PHILIPPINES

Philippines eyes payment operator registration freeze

The Philippines’ central bank has proposed freezing new payment-system operator registrations for 12 months while imposing tighter controls on payment arrangements involving virtual asset service providers (VASPs). 

Under a draft circular, the Bangko Sentral ng Pilipinas (BSP) said it would suspend acceptance and processing of applications for operators of payment systems (OPS) to conduct a “holistic review” of its taxonomy and licensing framework. 

HONG KONG

Chelsea’s USDC Jersey sponsorship creates problems in Hong Kong

Circle’s USDC jersey sponsorship deal with the Chelsea Football Club has created headaches in Hong Kong, where unlicensed crypto promotions are penalized and local merchants have been hesitant to sell the jersey.

Boyaa Interactive buysaa Bitcoin

Hong Kong-listed gaming company Boyaa Interactive has purchased another 115 Bitcoin, adding to its treasury holdings.

The UK House of Lords has backed an amendment that would force the government to set out a formal digital asset strategy, even as the Labour administration voted against the proposal. The measure passed during Wednesday’s Report Stage of the Financial Services and Markets Bill by a 194–138 margin.

The amendment—added to the bill in the Lords—would require the Treasury to prepare, publish, and consult on a strategy within 12 months after the bill becomes law. It is designed to cover cryptoassets, stablecoins, and tokenized securities, along with key issues such as consumer protection and how firms can access banking, payments, and settlement services.

Key takeaways

• The House of Lords approved an amendment (194–138) that would require a UK digital asset strategy to be published and consulted within 12 months of the bill becoming law.
• The proposed strategy must address multiple digital asset categories, including cryptoassets, stablecoins, and tokenized securities, rather than treating them as a single regulatory problem.
• The amendment’s inclusion reflects continued parliamentary debate over whether the government already has an effective strategy in place.
• Labour opposed the measure, arguing it did not sufficiently reflect the pace of digital asset development and the need for a cohesive regulatory framework.
• The bill now returns to the House of Commons, where MPs can accept, amend, or reject the Lords’ changes.

What the Lords voted for

Wednesday’s vote centred on Amendment 88, introduced by Conservative peer Baroness Neville-Rolfe. According to the amendment details, the Treasury would have to produce a strategy and carry out a consultation process within a year of the Financial Services and Markets Bill receiving Royal Assent.

In practical terms, the strategy is meant to function as a cross-cutting blueprint. It would not be limited to market rules alone; it would also address questions that often determine whether regulated firms can operate smoothly—such as how innovation can proceed while consumers are protected, and how companies gain access to essential banking, payment, and settlement rails.

The amendment further indicates the scope lawmakers want the document to cover. Instead of focusing narrowly on one segment of the market, it calls for coverage spanning cryptoassets, stablecoins, and tokenized securities. That matters for investors and operators because each category typically faces different risk profiles and policy debates, from stablecoin redemption and reserve transparency to the treatment of tokenized real-world assets.

Why Labour opposed it

Labour members in the Lords voted against the amendment. The party’s position, as described in parliamentary coverage, was that the proposal did not go far enough in responding to the speed at which digital assets are evolving and in delivering what Labour viewed as a genuinely cohesive regulatory approach.

The argument echoes earlier exchanges during the bill’s progress through Parliament. In a July debate, the Treasury’s Minister for Investment, Lord Stockwood, pushed back on calls for a statutory framework. He suggested the government already had a digital asset strategy and that it was simply putting that plan into action.

That framing created the central tension behind Wednesday’s vote: whether an enforceable requirement to publish and consult is necessary, or whether existing government work already amounts to an adequate strategic approach without locking policy into a timeline.

Parliament’s broader digital asset debate

The Financial Services and Markets Bill is moving through a wider reform process for the UK’s financial services regulatory framework. Within that larger effort, the Lords’ push for a dedicated digital asset strategy underscores how Parliament is trying to ensure digital-asset policy is not treated as an afterthought to mainstream finance.

As the vote demonstrates, the UK’s policy direction is still being contested in real time—particularly around the question of implementation. In effect, supporters of the amendment are seeking not only regulatory rules, but also a clear, time-bound plan that explains how the government intends to balance market development with protection of users and the operational realities for regulated firms.

One reason this matters to market participants is that strategy documents can influence how compliance expectations are shaped. They can also affect whether institutions build products, list services, or integrate with payment and settlement providers—areas the amendment explicitly flags.

Industry reaction and what happens next

The UK Cryptoasset Business Council said it worked with lawmakers on the amendment and welcomed the Lords’ vote. In its public statement, the group pointed to a question raised by Lord Chris Holmes: whether the UK is “simply regulating digital assets” or “building a digital assets economy.” That framing speaks to the same policy divide highlighted by the Labour opposition—whether the government approach should be confined to oversight, or structured to actively enable market growth.

Even with the Lords’ approval, the process is not complete. The bill must return to the House of Commons, where MPs can accept the Lords’ changes, amend them further, or reject them outright. That next step will determine whether the amendment becomes law and whether the Treasury will be bound by the 12-month publication and consultation requirement.

For readers tracking UK digital asset policy, the immediate watchpoint is not just the outcome in the Commons, but the practical follow-through implied by the amendment: how the Treasury defines the strategy’s scope, how it structures consultations, and whether it addresses operational concerns—such as banking, payments, and settlement access—that often shape real-world market viability.

Rootstock co-founder Sergio Lerner has called for Bitcoin bridges to adopt mandatory withdrawal delays after about 4,000 BTC left Liquid Network’s federation wallet through an unauthorized peg-out.

Sergio Lerner, chief scientist and co-founder of RootstockLabs, told crypto.news that immediate settlement can turn a single validation error into a loss before bridge operators have time to respond.

“Without a time-delay lock, a single validation bug and a total loss become the exact same event, because funds move the moment software says ‘yes,’” Lerner said.

His comments followed an incident in which actors created unbacked L-BTC and used SideSwap’s peg-out service to withdraw nearly 4,000 BTC from the Liquid Federation wallet. Liquid described the actors as purported white-hat hackers, while SideSwap said its service processed the request because the L-BTC appeared valid.

The actors later returned 3,400 BTC after Blockstream confirmed that affected bridge nodes had been patched. About 598 BTC remained outstanding, while Liquid resumed block production without restoring transactions or peg operations as of Sep. 10.

A time-delay lock could have created an intervention window

Lerner said a mandatory delay between the creation of the unbacked L-BTC and the release of real BTC could have reduced the damage.

Under such a system, software approval would start a waiting period rather than complete the withdrawal. Automated monitoring tools could compare the requested peg-out with the BTC backing L-BTC and flag any imbalance before settlement.

“If Liquid had possessed a time-delay lock — where funds cannot move for a specified period regardless of what the software or operators say — the bug would have resulted in a manageable incident rather than an immediate, full-scale catastrophe.”

According to Lerner, the delay would have given operators a multi-hour response window after the unbacked tokens were created. Monitoring systems running around the clock could have detected that the peg-out passed the first software checks despite lacking corresponding collateral.

Functionaries could then have paused the peg before the hardware signed the transaction or released BTC from the federation wallet, he added.

Liquid’s system did not report a stolen Peg-out Authorization Key. SideSwap said a customer sent 4,000 L-BTC to its peg-out service, which handled the request under its normal process because the tokens could not be distinguished from backed L-BTC. The federation paid 3,996 BTC to the supplied Bitcoin address about 23 minutes later.

Lerner’s proposal would place an additional control after the first validation stage. Even if software mistakenly approved a withdrawal, the delay would prevent the corresponding BTC from leaving immediately.

Rootstock enforces a 4,000-block Bitcoin withdrawal delay

Rootstock already uses a delay mechanism for BTC withdrawals through its two-way peg, although Bitcoin’s consensus rules do not enforce the waiting period.

The system relies on specialized hardware security modules called PowHSMs. Before signing a peg-out, the devices independently verify that 4,000 Rootstock blocks have passed, representing about 36 hours of cumulative proof-of-work.

Private keys remain inside the devices, according to Lerner, and functionaries cannot instruct the hardware to bypass the required period. Rootstock combines the HSM rules with merge-mining, through which Bitcoin miners contribute proof-of-work to the sidechain.

“Even a colluding majority of pegnatories cannot steal the funds, because the private keys never leave the PowHSMs, and the HSMs independently verify that 4,000 Rootstock blocks have elapsed before they will sign,” Lerner said.

Rootstock’s model assumes that a majority of the Bitcoin hash rate participating through merge-mining and the federation functionaries will not work together to halt the network. Lerner said compromised functionaries could interrupt peg operations, creating a liveness problem, but the HSM rules would prevent them from forcing an unauthorized early withdrawal.

When monitoring tools identify suspicious activity, functionaries can switch off their HSMs so that the pending peg-out receives no signature. Lerner described the pause as a way to protect the underlying BTC while operators examine the problem and decide how to proceed.

“A colluding majority can, at worst, halt the peg, but they cannot force an unauthorized withdrawal,” he said.

Distributed revocation controls could limit freezing powers

Stopping a pending withdrawal introduces another risk because the same power could be used to delay legitimate users. Lerner said no single company, operator, or administrator should control the revocation mechanism.

Instead, independent functionaries should share the authority through a multiparty structure, with hardware rules limiting what they can do. Under his proposed model, functionaries could pause processing but could not redirect the BTC to another address or confiscate it.

“To prevent single points of failure or centralized censorship, revocation controls should be distributed among independent, multi-party functionaries using hardware-enforced rules rather than centralized administrative keys.”

Such controls would still allow a group of functionaries to interrupt withdrawals if enough participants acted together. Lerner’s distinction rests on the scope of that authority: operators could temporarily withhold signatures while an anomaly is reviewed, but they could not create a valid transaction that transfers the collateral to themselves.

Time delays would also need to account for the value and purpose of each transaction. A 36-hour wait may be unsuitable for routine payments, while a bridge holding large amounts of BTC has a different risk profile.

Lerner said high-value settlement systems should treat time as a security control, similar to the delay mechanisms used by physical bank vaults. Withdrawal periods could vary by transaction size or require different cumulative proof-of-work thresholds according to the collateral at risk.

A shorter period could apply to smaller transfers, while a longer delay could give automated systems and human responders more time to inspect an unusually large request. Lerner did not prescribe one delay for every bridge, but cited Rootstock’s 4,000-block requirement as an effective period for infrastructure securing large BTC balances.

Native Bitcoin vaults could place safeguards in consensus

Rootstock’s current protection depends on its HSMs and federation rather than rules enforced by the Bitcoin network. Lerner said native Bitcoin vaults and revocation keys could move comparable controls into the base protocol.

One possible building block is BIP-443, a draft proposal for an opcode called OP_CHECKCONTRACTVERIFY, or OP_CCV. The proposal would let a Bitcoin output carry data and restrict how its funds may move through future transactions.

BIP-443 describes OP_CCV as a consensus change requiring a soft fork. Its listed uses include state-carrying Bitcoin outputs, sidechains, and two-step withdrawal structures that allow reactive security. The proposal remains in draft status, and its activation process has not been determined.

Lerner cited OP_CCV and BIP-443 as examples of how native vaults could give users or designated parties time to cancel a withdrawal after detecting stolen credentials, altered software, or another abnormal event.

Moving the mechanism into Bitcoin consensus would reduce reliance on bridge-specific HSM policies, according to Lerner. Miners, functionaries, or administrators would have to follow the spending conditions attached to the Bitcoin output rather than apply a discretionary pause after funds had already moved.

For large bridge withdrawals, Lerner said the delay should last long enough for automated alerts and human operators to identify the problem, stop processing, and examine the affected software before the BTC becomes permanently spendable by the recipient.