Regulators Tackle Risks as Tokenized Treasuries Surge Past $7.4B

Tokenized crypto treasuries and securities are expanding rapidly, but their integration into volatile asset markets is amplifying risks for investors and institutions. By mid-2025, the tokenized market had grown to $23.92 billion, with U.S. Treasuries and stocks representing key segments. Tokenized Treasuries alone reached a market cap of $7.4 billion, while tokenized stocks accounted for approximately 2% of the total tokenized market, according to public dashboards like RWA.xyzSEC Breakthrough on Tokenized Stocks: $31 Billion Market on the Rise^[1]. These assets are increasingly used as collateral in leveraged trading, exposing crypto markets to cascading liquidity risks and geopolitical volatilityTokenized US Treasurys Increase Market Risk Vectors^[3].

The U.S. Securities and Exchange Commission (SEC) is actively exploring frameworks to regulate tokenized securities, aiming to bridge traditional finance and blockchain infrastructure. A proposed rule by Nasdaq, filed in September 2025, would allow tokenized stocks and exchange-traded products (ETPs) to trade alongside traditional securities, with settlements occurring on blockchain networks. The plan emphasizes equal execution priority and identical rights for tokenized and traditional shares, including voting and dividend entitlements. However, regulatory clarity remains limited, with the SEC emphasizing technology-neutral oversight but requiring alignment with existing investor protection standardsSEC Breakthrough on Tokenized Stocks: $31 Billion Market on the Rise^[1].

Technical and operational risks are central to the tokenization debate. Smart contract vulnerabilities, such as reentrancy attacks and oracle manipulation, have led to significant losses in past incidents, including a $112 million theft from Mango Markets in 2022Nasdaq Wants SEC To Approve Tokenized Securities Trading — …^[8]. Tokenized Treasuries also face challenges in reconciling on-chain ledgers with traditional stock registers, creating potential discrepancies. Kadan Stadelmann, CTO of Komodo, highlighted that 24/7 onchain trading of tokenized stocks could trigger liquidity runs during off-hours, exacerbating market instabilitySmart Contracts: Common Vulnerabilities and Real-World Cases^[6].

Leveraged trading using tokenized Treasuries as collateral further compounds systemic risks. Platforms like Deribit and Crypto.com now allow users to post tokenized U.S. Treasury funds for margin trading, a practice that could amplify market swings during periods of stress. The U.S. Treasury warned that tokenized assets "could spill over into the broader financial markets" as their size growsTokenized US Treasurys Increase Market Risk Vectors^[3]. Additionally, geopolitical tensions and fiscal uncertainties-such as U.S. trade policies and rising bond yields-introduce external risks to tokenized debt instrumentsTokenization of U.S. Treasuries: A Savior or a Disaster for the …^[2].

Institutional adoption is accelerating, with firms like BlackRock, Franklin Templeton, and Nasdaq piloting tokenized products. BlackRock's BUIDL fund, for instance, holds $6.57 billion in tokenized money market assets, while Nasdaq's proposed framework seeks to streamline tokenized trading through the Depository Trust Company (DTC)Wall Street’s Crypto Shift: Tokenized Assets Surge in …^[4]. However, critics warn that tokenized equities could mislead investors, particularly if platforms lack full shareholder rights or issuer consent. The European Securities and Markets Authority (ESMA) has already raised concerns about "investor misunderstanding" in tokenized offerings.

Despite these risks, the potential for tokenized assets to enhance liquidity and reduce transaction costs remains significant. For example, tokenized Treasuries enable fractional ownership and 24/7 trading, broadening access for retail investors. However, the path to mainstream adoption hinges on resolving regulatory ambiguities, standardizing smart contract audits, and addressing custody complexities. As the SEC and global regulators refine frameworks, the sector's ability to balance innovation with risk mitigation will determine its long-term viabilitySEC Breakthrough on Tokenized Stocks: $31 Billion Market on the Rise^[1].