European Union may lag behind the United States in regulations for tokenization, caution digital asset companies.

A coalition of blockchain companies cautioned EU policymakers on Thursday that failing to address its pilot regime could result in a permanent shift of capital markets to the U.S.

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What to know:

• A coalition of eight EU-regulated digital asset companies is alerting European regulators to the potential loss of the bloc’s initial advantage in blockchain-driven capital markets as the U.S. accelerates its tokenization initiatives.
• The companies contend that the EU’s distributed ledger technology pilot regime is overly restrictive, which may result in capital shifting to U.S. markets.

The competition to innovate capital markets through blockchain technology is intensifying, and Europe risks losing its early advantage to the U.S., according to a group of blockchain companies in a letter released on Thursday.

Eight EU-regulated digital asset firms—Securitize, 21X, Boerse Stuttgart Group’s Seturion, Central Securities Depository, Lise, OpenBrick, STX, and Axiology—are urging policymakers to accelerate reforms to the bloc’s distributed ledger technology Pilot Regime, asserting that existing restrictions are hindering the region just as the U.S. begins to act decisively.

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"While Europe is still considering its options, the U.S. has taken action and is poised to dominate the digital infrastructure of the future global economy," the firms expressed in the letter.

Tokenization is the process of converting real-world assets such as stocks, bonds, or funds into blockchain-based tokens. Supporters in the industry view this as a means to significantly enhance settlement efficiency, boost transparency, and enable fractional ownership. The potential market is substantial, with several reports estimating that tokenized assets could reach several trillion dollars in the coming years.

The EU was an early adopter of a legal framework for tokenized financial infrastructure, yet its regulatory sandbox—the DLT Pilot Regime—was established with cautious restrictions. The companies behind the letter argue that these limitations now threaten to turn the EU’s tokenization advantage into a "success trap," while the U.S. progresses rapidly.

The U.S. Securities and Exchange Commission (SEC) has recently issued a no-action letter to the DTCC, the largest settlement firm in the country, paving the way for comprehensive tokenized settlement. An instant settlement market (T+0) could be operational in the U.S. by as early as 2026, with exchange operators Nasdaq and the New York Stock Exchange having laid out plans for continuous trading of tokenized securities. CME Group, which manages a vital derivatives trading venue for Wall Street firms, is collaborating with Google on a tokenized cash collateral initiative set to launch later this year.

This would provide the U.S. with a four-year advantage prior to the full implementation of the EU’s broader Market Integration and Supervision Package (MISP) by 2030, the letter cautioned.

The group suggested modifications to the framework to avert this situation. These include lifting restrictions on which assets can be tokenized, increasing the transaction volume limit from €6 billion to €9 billion to a range of €100 billion to €150 billion, and removing the six-year limitation on licenses.

"If Europe remains restricted until 2030, global liquidity will not wait—it will permanently shift to U.S. markets, undermining the euro’s competitiveness through regulation rather than innovation," the letter stated. "The EU must take action immediately to avoid repeating the errors of its capital markets past."