Tokenization Firms Warn EU DLT Pilot Constraints Risk Pushing Markets to the US

European tokenization firms are urging regulators to address constraints in the EU’s DLT Pilot Regime, warning that current limitations could push capital and liquidity out of the region. In a letter dated Feb. 5, 2026, signatories including Securitize, 21X, and Axiology highlighted that narrow asset eligibility, volume caps, and time-limited licenses are already affecting live products. The firms argue that these restrictions place EU markets at a disadvantage as the U.S. advances in onchain infrastructure and settlement systems.

The DLT Pilot Regime, a regulatory sandbox for distributed ledger technology in financial instruments, has been criticized for its limited scope and outdated parameters. These constraints prevent regulated firms from scaling operations and competing with U.S. counterparts that have already achieved industrial-scale tokenization. . The letter calls for a targeted 'quick fix' to these issues to prevent a 'success trap'.

A significant gap in market development is evident between the EU and the U.S. The letter contrasts the EU’s long-term approach with the U.S.’s faster regulatory progress, which has enabled T+0 settlement and fully digital markets. Without adjustments, the firms warn that liquidity could migrate permanently to the U.S..

Why the Move Happened

The DLT Pilot Regime was designed to enable experimentation with blockchain-based trading and settlement. However, its narrow asset scope and volume caps are now seen as barriers to innovation. The letter states that the U.S. has moved ahead in industrial-scale tokenization, allowing for faster adoption and market expansion. The EU, by contrast, risks falling behind in a market defined by speed and adaptability.

EU regulators are working on the Market Integration and Supervision Package (MISP), which outlines broader reforms to capital markets. However, this timeline extends to 2030, leaving a window during which U.S. markets could gain a significant edge. The authors argue that timing is crucial in digital markets and that legislative delays undermine the EU’s early lead in tokenization.

How Markets Responded

The letter also highlights investor concerns about the EU’s ability to remain competitive. Regulated firms operating under the pilot regime already comply with investor protections, but the current parameters prevent them from scaling operations effectively. The signatories stress that the requested changes are not a call for deregulation but rather a technical adjustment to maintain EU competitiveness.

Market participants are watching closely to see if the EU will act swiftly. The firms proposed expanding asset eligibility, raising volume caps from €6 to €9 billion to at least €100 to €150 billion, and removing the six-year license limit. These changes could be implemented through a standalone technical update within six months, avoiding the need for a transition period.

What Analysts Are Watching

Analysts are focusing on how the EU will respond to these calls for reform. The letter warns that without swift action, the DLT Pilot Regime could become a well-intentioned but ineffective experiment. The authors argue that the regime must be adjusted to avoid repeating past capital markets mistakes and to preserve the international standing of the euro.

Investors are also watching for signs that the U.S. is gaining a structural advantage in digital markets. The letter points to regulatory actions in the U.S. that have already enabled fully digital, T+0 settlement systems. This development could make it difficult for EU markets to attract liquidity and capital in the long term.

The proposed changes aim to balance regulatory oversight with market competitiveness. By removing unnecessary constraints, the EU could retain its early lead in tokenization while ensuring its markets remain relevant in a rapidly evolving digital landscape.