Tokenization firms warn EU DLT pilot constraints risk pushing markets to the US

Major tokenization firms focused on institutional finance have issued stern warnings regarding the constraints embedded within the European Union’s Distributed Ledger Technology (DLT) Pilot Regime. While the regime, launched in 2023, was designed to provide a safe regulatory sandbox for testing blockchain technology with traditional financial instruments, industry participants argue that the limitations are proving too restrictive for meaningful development and scalability.

The primary complaint centers on the stringent volume and complexity caps imposed by EU regulators. The framework restricts the aggregate market value of DLT-based financial instruments to approximately €6 billion across all pilots, with individual pilot schemes often capped between €100 million and €500 million depending on the asset class. Firms specializing in large-scale tokenization of corporate bonds, investment funds, and structured products contend that these limits are far too low to attract significant institutional investment or properly stress-test platforms for market stability and liquidity.

This regulatory hesitancy is actively causing firms to re-evaluate their operational bases. Executives warn that the lack of capacity for scaling complex financial use cases is encouraging developers, talent, and capital to shift focus toward jurisdictions perceived as offering greater market depth and regulatory clarity for institutional adoption—most notably, the United States. Despite ongoing regulatory ambiguities in the US, the sheer potential scale of the American market is proving more attractive to firms seeking to deploy large-scale DLT infrastructure.

Industry bodies are lobbying the European Securities and Markets Authority (ESMA) to urgently review and relax these volume constraints before the DLT Pilot transitions fully into the Markets in Crypto-Assets (MiCA) regulation. Failure to do so, they contend, will result in the EU forfeiting its competitive edge in the global race for digital finance leadership.

Source: Tokenization firms warn EU DLT pilot constraints risk pushing markets to the US