Jamie Alcock is Professor of Mathematics and Finance, and Deputy Dean of the Jinan-Birmingham Joint Institute, at The University of Birmingham.
A new generation of blockchain-based platforms is offering synthetic access to financial assets under the banner of decentralisation and financial inclusion, including fractional equities, indices, and yield-bearing tokens. Their promise is seductive: instant settlement, global access, and freedom from intermediaries. But behind the sleek interfaces and technical rhetoric lies a structural reality that regulators, institutions, and the public can no longer afford to ignore.
These systems do not decentralise power in any meaningful governance sense. They decentralise accountability, dispersing legal obligations across a network of offshore entities, unaudited smart contracts, and user-facing wrappers that obscure the true nature of the risk.
At the core of these platforms are tokenised products that mirror exposure to real-world assets but stop short of transferring legal title. What the user receives is not ownership, but a synthetic proxy: programmable, tradeable, but ultimately unenforceable. If the platform fails, if redemptions are paused, or if the custodian becomes insolvent, users have no statutory claim. There is no investor protection scheme, no fiduciary duty, and often no regulated entity at all.
This fragility is not incidental. It is deliberate. These platforms are structured to span jurisdictions, placing governance in one country, custody in another, and code on decentralised infrastructure that is functionally beyond the reach of any single regulator. The result is a system designed not to comply with regulation but to avoid its very possibility.
Decentralisation, as promoted in this context, does not mean public ownership or equitable control. It means that no one can be held accountable when things go wrong. Governance tokens, so often portrayed as democratising tools, tend to concentrate power in the hands of early insiders or institutional investors. Meanwhile, ordinary users are invited to participate in systems they cannot understand and which offer no enforceable rights.
This asymmetry between architecture and accountability is not new. It mirrors previous moments in financial history where complexity masked risk: the unregulated contracts-for-difference boom, the ICO frenzy of 2017, and the structured credit markets that preceded the 2008 crisis. In each case, technological or financial innovation was used not to strengthen resilience but to shift risk downward, on to those with the least ability to bear it.
Regulators have been slow to respond, constrained by jurisdictional boundaries and legacy enforcement models that struggle to address systems with no central issuer, no regulated intermediary, and no clear legal classification. Some jurisdictions have begun constructing frameworks for virtual assets, stablecoins, or tokenised securities. But in the absence of global alignment, platforms will continue to exploit regulatory divergence. They operate globally, but with no global accountability.
In this environment, the first line of defence must shift to the public. Education is not a substitute for regulation, but it is the only immediate tool available to reduce harm. Users must be equipped to ask critical questions before participating in token-based financial products. They should know whether they are acquiring legal title or synthetic exposure, whether custody is segregated and verifiable, whether redemptions are discretionary, and whether any regulatory protections apply in the event of failure.
This is not traditional financial literacy. It is digital-asset due diligence, and it must become a public priority. Campaigns led by central banks, financial educators, and trusted media channels should begin demystifying these systems now, before the next collapse erodes trust more broadly.
But public education alone is not enough. Regulatory agencies already possess the conceptual tools needed to act. Tokenised products that provide synthetic exposure without legal transfer of the underlying asset are functionally equivalent to unregulated financial derivatives. In every other domain, these instruments are subject to access restrictions. They are not marketed to the general public. They are limited to sophisticated or wholesale investors who meet clearly defined criteria for financial knowledge, experience, and risk tolerance.
The same principle should apply here. Platforms that offer synthetic tokens should be required to conduct onboarding checks, provide jurisdiction-specific risk disclosures, and prohibit retail participation unless the user has demonstrated an appropriate level of understanding and capacity. Legal classification should be based not on how a product is issued, but on what it actually does. If it behaves like a derivative, it should be treated like one.
This approach does not stifle innovation. It simply aligns risk with capacity. Financial systems are not made safer by denying complexity. They are made safer by restricting complexity to those who can understand and, most importantly, absorb it.
Unless these measures are adopted, through public awareness and regulatory recalibration, these technologies will continue to grow in opacity and fragility. They will expand through arbitrage, shielded by decentralisation rhetoric, and monetised by those best placed to exit when the system fails.
If that failure comes, it will not be because the system was unregulated. It will be because it was designed to make regulation impossible, and we accepted that design.
https://www.ft.com/content/c8379d47-7f80-4ee6-8e9d-69b379cea027
