EU's DLT Restrictions May Hinder Market Activity, Industry Pushes for Swift Regulatory Reforms

The European Union faces a critical challenge in its tokenization governance strategy. Leading market infrastructure operators, including Securitize, have formally signaled alarm to EU policymakers, warning that overly restrictive regulations in the distributed ledger technology (DLT) pilot regime risk pushing liquidity and trading flows westward toward the United States. The collective industry letter, signed by entities like 21X and the Stuttgart Exchange Group, reveals a growing consensus that Europe’s current framework, while theoretically sound for long-term development, carries implementation constraints that threaten competitive positioning.

The Regulatory Bottleneck: Why Current Restrictions Limit Market Participation

The EU’s Market Integration and Regulation Scheme establishes a reasonable foundation for on-chain market infrastructure development, yet critical flaws constrain its effectiveness. The implementation roadmap postpones essential reforms until at least 2030, creating an extended interim period where market participants operate under restrictive conditions. Most critically, the DLT pilot regime imposes three structural limitations: a narrow asset eligibility spectrum that excludes many tokenizable instruments, transaction volume ceilings set between 60-90 billion euros that severely cap market scale, and a six-year validity period for market infrastructure licenses that prevents long-term investment certainty.

These constraints don’t merely slow European progress—they actively discourage market innovation. When regulatory parameters remain constrained, sophisticated traders and institutions redirect capital flows toward jurisdictions offering greater operational flexibility. The result: Europe risks becoming a passive observer while competitors accelerate on-chain market infrastructure development.

The Transatlantic Competition: Why the US is Gaining Ground

Meanwhile, the United States is rapidly advancing its competitive advantage in on-chain market infrastructure without comparable regulatory friction. American exchanges and tokenization platforms operate with fewer structural limitations, attracting both institutional capital and innovation-focused projects. This divergence threatens Europe’s position as a global financial center at precisely the moment when digital asset infrastructure becomes critical competitive infrastructure.

The stakes extend beyond tokenization firms—they encompass Europe’s broader ability to retain financial market leadership in an increasingly decentralized economic environment.

The Industry’s Reform Blueprint: Urgent Changes Within Six Months

Signatories are not requesting gradual reform; they’re demanding swift amendments to the DLT pilot regime within six months. Their proposed revisions include three key modifications: expanding the range of permissible assets under the pilot framework, increasing transaction volume caps from the current 60-90 billion euros to 100-150 billion euros, and crucially, removing the six-year license validity ceiling to enable longer-term strategic planning.

These changes can be implemented through two channels: independent technical revisions without full legislative processes, or streamlined legislative proposals that preserve regulatory intent while expanding operational scope. Industry advocates emphasize that such amendments would preserve the EU’s regulatory rigor while unlocking the market dynamism necessary for competitive resilience.

The message is clear: incremental policymaking risks ceding European market activity to faster-moving jurisdictions. Swift regulatory calibration remains the pathway for Europe to maintain its tokenization and on-chain market infrastructure leadership.