ESMA reviews whether blockchain-based collateral can be liquidated

The European Securities and Markets Authority is reviewing the use of tokenized stocks, bonds and other assets on blockchains as collateral, while gathering industry feedback on whether such collateral can actually be recovered and converted into cash during a financial crisis or a counterparty default. ESMA said even assets that are readily liquid in traditional financial markets could face delays in liquidation once tokenized because of redemption procedures or trading restrictions. The authority also plans to examine whether token holders have legal rights to the underlying stocks or bonds. Based on the review, ESMA will decide whether existing EU regulations are sufficient to address the risks involved or whether additional rules are needed.