The European Securities and Markets Authority (ESMA) warned that as connections between the crypto market and traditional finance expand, the risk is rising that shocks in one area could spread across the broader financial system.

On Sept. 10, Cointelegraph and ESMA said ESMA, in its “Trends, Risks and Vulnerabilities Report: 2026, Second Edition” released that day, said closer monitoring is needed of the growing links between a more vulnerable crypto market and the wider financial system. It singled out tokenised stocks, decentralised finance (DeFi) hacks and prediction markets as major risk factors.

Tokenised stocks are products that represent ownership or prices of conventional shares as blockchain-based tokens. Their scale remains small compared with global stock markets, but adoption is rising quickly. ESMA said inflows of new market participants and trading infrastructure could also bring changes to existing financial market structures. A recent series of DeFi hacks was also assessed as a factor that could increase the risk of potential shock transmission as links between crypto and traditional finance deepen.

On prediction markets, ESMA warned about the possibility of insider trading and market manipulation. It said that if cryptocurrencies are used for payments and trading, it could become harder to detect insider trading, wash trading and organised price manipulation.

The warning came as regulatory clashes over prediction markets intensify in the United States. The key issue is whether event contracts that bet on the outcome of specific events such as sports and politics should be seen as financial products subject to federal derivatives law, or as targets of state gambling regulation.

The U.S. Commodity Futures Trading Commission (CFTC) has maintained that the federal government has exclusive jurisdiction and has filed lawsuits against several states this year. New Jersey on Sept. 2 also petitioned the Supreme Court to decide whether the state can apply its sports gambling law to a CFTC-registered prediction market. As prediction markets grow and the boundaries between crypto, traditional finance and gambling regulation are shaken at the same time, regulators in each country are also becoming more alert.