What is a market, if not a shared agreement about what is real? The trouble begins when investors fall in love with the reflection. Tokenised securities promise the same price and the same performance as the asset they imitate, but not the same rules, the same disclosure, or the same ownership protections. That is not innovation’s clean edge. It is a mirror held up to the market’s face, with the glass quietly removed.
The point is not that every new financial wrapper is fraudulent. Finance has always built replicas: futures, swaps, depository receipts, exchange-traded funds. Replication can be useful. It can also be a convenient way to hide the load-bearing parts of a structure. When the wrapper becomes more visible than the object it represents, investors begin to confuse access with ownership, speed with safety, and liquidity with certainty. The history of markets is littered with instruments that looked elegant until stress exposed the plumbing.
The latest warning comes from a Financial Times column by Rana Foroohar, which argues that tokenised securities are mirror images of the real thing but pose new risks. That phrase is useful because it captures the seduction exactly. A mirror gives you the outline without the substance. It flatters proportion and erases depth. In finance, the danger is that the market starts pricing the copy as if it were the original, while the legal and operational scaffolding remains thinner than investors assume.
The FT column ties the danger to the US Clarity Act, also called the Crypto Market Asset Financial Clarity Act. The concern is straightforward: the draft does not require SEC rules to apply to tokenised equities. If that remains true, the law could create a channel for trading virtual shares under a lighter regime than the one governing the underlying stock. This is how regulatory arbitrage usually enters: not with a bang, but with a plausible story about efficiency.
The old market lesson is that risk does not vanish when it is wrapped differently. It migrates. If the same economic exposure can be held through a direct share, a token, or a perpetual future, then the investor may think he has diversified when he has only multiplied the number of doors into the same room. Under current SEC rules, investors holding 5% or more of a company’s shares must disclose. In a tokenised setup, an investor could hold 3% directly and add synthetic exposure through tokens or perpetual futures, crossing the economic threshold without necessarily tripping the disclosure rule. That is not a minor technicality. Disclosure rules exist because hidden control changes the game.
Here is the quiet paradox: markets praise transparency, but their participants often prefer opacity when it benefits them. Every generation invents a new instrument and tells itself the old mistakes will not follow. Yet the temptation remains the same. When ownership becomes fragmented across legal forms, enforcement gets harder, and the person most likely to notice the weakening of rights is the one who has already been paid to overlook it.
This is not a lonely worry. The World Federation of Exchanges formally warned the SEC, IOSCO, and ESMA on 26 August 2025 about third-party tokenised equities. Its concerns were familiar to anyone who has watched a bridge fail: liquidity fragmentation, lack of shareholder rights, custody and enforceability risks, and regulatory arbitrage. Nandini Sukumar, the group’s chief executive, put it bluntly: “The WFE supports innovation, particularly when done based on exchange traded products. However, these mimicked products do not meet the high standards which investors are used to. What we are seeing is a blatant attempt to circumvent regulation…”
That is an exchange industry voice, so it should be read as interested, not holy writ. But the categories matter. Fragmented liquidity sounds harmless until you need to exit quickly and discover there is no single market. Custody risk sounds administrative until an ownership claim must be enforced across legal and technical systems that do not fully agree. In classical terms, this is the old problem of appearance versus essence. The instrument may resemble a share, but if the rights are diluted, the resemblance is cosmetic.
The Hong Kong SFC made a similar point in its November 2023 circular, setting a “same business, same risks, same rules” standard for tokenised securities. It also identified ownership risks and technology risks, including forking, blockchain outages, and cybersecurity, as new categories not present in traditional securities. That distinction is important. Traditional finance has operational risk, but tokenised finance adds a digital layer where failure can spread with software speed. A ledger can be efficient and still be brittle. Engineering teaches that tighter systems can fail more sharply when the stress point is hidden.
The recent market record should also humble anyone who thinks the new wrappers are somehow self-correcting. SIFMA’s December 2025 SEC submission pointed to the October 2025 crypto flash crash and the November 2025 Stream Finance collapse as evidence of the risks from unregulated leverage and opaque exposures in tokenised and DeFi markets. According to the same pack, the flash crash erased 13.1% of crypto market value in under three hours, and some altcoins fell 60% to 90% intraday. Those are not the kind of moves that indicate a mature market with robust shock absorbers.
Leverage behaves like dry grass in a windstorm. It sits quietly until it doesn’t. Then everyone discovers that “liquidity” was a daytime phenomenon and a nighttime fiction. SIFMA wants rulemaking on fragmentation, clearing, leverage limits, and disclosure. That is not a crusade against technology. It is a recognition that leverage plus opacity has always been a dangerous pairing, whether the wrapper is a mortgage derivative, a repo chain, or a token on a blockchain.
The Kalshi detail in the FT material helps explain why the boundary keeps blurring. Kalshi perpetual futures trading volume reached $17.5 billion since its May 2025 launch, according to Robert DeNault, the company’s chief compliance officer, speaking at a Council on Foreign Relations event. Volume is not proof of virtue. It is proof of appetite. Markets are excellent at discovering where humans want speed, leverage, and convenience before they have considered the legal consequences. A thriving venue can still be a weak foundation if the risk is being priced faster than it is being understood.
Investors like copies because copies are easier to trade than responsibilities are to own. A token can feel modern, clean, and frictionless. It may even track the price of the underlying asset closely enough to satisfy the eye. But the eye is a poor auditor. It notices the candle, not the oxygen feeding it. In that gap lives the fragility. If the token does not confer the same rights, disclosure regime, custody certainty, or enforceability as the share it imitates, then the investor is not holding a simplified stock. He is holding a contract on top of a contract, and hoping the stack remains calm.
Game theory explains the temptation. If each participant believes others will accept the copy as equivalent, the market can drift into a coordination equilibrium where everyone acts as if the legal differences do not matter. That works until stress arrives. Then the very features dismissed as minor become the only features that count. Who owns what? Who can enforce what? What happens when the chain breaks, the exchange fails, the intermediary disappears, or the legal regime refuses to recognize the shortcut?
The answer, usually, is that the market re-discovers the importance of first principles. Gravity was never suspended; it was merely ignored.
The coming policy debate is not really about whether tokenisation is technologically interesting. SEC Commissioner Hester Peirce said on 9 July 2024 that “Tokenised securities are fascinating, but not magical… they do not have the magical ability to transform the nature of the underlying asset.” That is the right mental model. The wrapper can alter access, speed, and settlement mechanics. It cannot abolish ownership law, disclosure requirements, or the laws of leverage.
So the real test is not whether tokenised securities can be made to move like the original. It is whether the market can resist treating the imitation as a substitute for the real thing. That is where the old fragility hides. Finance repeatedly mistakes liquidity for truth and engineering for immunity. The better question is not whether the hologram looks convincing. It is whether anyone remembers to check whether there is still a solid object behind the projection.
