Carlos Domingo has warned that the vast majority of tokenized stocks currently trading are unauthorized offshore paper, exposing investors to insider trading risks. The rise of these unregulated digital securities could destabilize traditional markets, he said, and is likely to draw increased regulatory scrutiny and potential legal reforms.
The warning from Carlos Domingo
Domingo, a figure in the digital securities space, said that most tokenized stocks are not backed by the issuing companies and exist outside any recognized regulatory framework. He described them as “offshore paper” that carries significant risks for buyers, including the possibility of insider trading because the tokens are not subject to the same disclosure and trading rules as listed equities.
His comments come as the market for tokenized assets — digital representations of traditional stocks on blockchain networks — continues to grow. While some platforms claim to offer regulated products, Domingo argued that the majority operate in a legal gray area, with tokens often created without authorization from the underlying company.
Risks to market stability
The proliferation of unauthorized tokenized stocks could have broader consequences, according to Domingo. If large volumes of these tokens trade in opaque markets, they could distort the price discovery of the actual stocks and create arbitrage opportunities that undermine confidence in regulated exchanges. Insider trading is a particular concern, he said, because token issuers and early buyers may have access to material non-public information that they can exploit before the information reaches the broader market.
Domingo’s warning echoes earlier concerns from regulators about the risks of unregistered securities offerings in the crypto space. The U.S. Securities and Exchange Commission has already taken enforcement actions against several token issuers, but the cross-border nature of blockchain-based trading makes oversight difficult.
Regulatory response
The warning is likely to intensify calls for clearer rules around digital securities. Domingo suggested that existing securities laws may need to be updated to explicitly cover tokenized stocks, especially those that are created and traded without the involvement of the original issuer. He also pointed to the need for international coordination, since many of these tokens are issued from jurisdictions with weak enforcement.
Some market participants have argued that tokenization can improve efficiency and access, but Domingo’s critique highlights the downside of a market that has grown faster than the rules meant to govern it. No specific regulatory proposals have been announced in response to his comments, but the issue is expected to be discussed at upcoming industry conferences and possibly in hearings.
For now, investors in tokenized stocks remain in a regulatory gray zone. Whether authorities will move to tighten the rules — and how quickly — is an open question. No timeline for potential reforms has been given.
