ESMA flags crypto links as potential risk to traditional finance

The European Securities and Markets Authority (ESMA) has warned that expanding links between crypto markets and traditional finance could increase risks across the broader financial system. In its assessment, the EU securities regulator highlighted tokenized equities, decentralized finance (DeFi) exploits and prediction markets as areas requiring attention. The warning focuses on the potential effects of growing connections between crypto-related activity and established financial markets. ESMA’s concerns cover both products that represent traditional assets through tokens and risks arising from activity within decentralized platforms. Prediction markets were also identified among the areas where closer ties to the wider financial system could create additional vulnerabilities. The regulator’s comments come as crypto use becomes more connected with traditional financial activity, although the source material does not identify a specific incident, market move or individual asset as the trigger for the warning.