ESMA warns of crypto-finance contagion risks

The European Securities and Markets Authority (ESMA) has issued a warning regarding the increasing links between crypto-assets and the traditional financial system. In its latest risk monitoring report, the regulator cautioned that these growing connections could amplify contagion risks, potentially allowing shocks within the crypto market to spread more easily to the broader financial sector.

ESMA specifically identified the rising adoption of tokenized assets and recent exploits in decentralized finance (DeFi) as factors that strengthen these links. Additionally, the regulator flagged prediction markets as an emerging risk, citing concerns over market manipulation and the difficulty of detecting insider trading and wash trading in these environments.

In a separate enforcement action, the United States Department of Justice froze over $52 million in cryptocurrency linked to the Xinbi Guarantee fraud market.