Regulatory and Compliance Challenges for Issuers of Equity Tokens in the European Union

Abstract

Abstract The rapid expansion of Initial Coin Offerings (ICOs), accompanied by widespread fraud and project failures, has underscored the need for more legally secure forms of blockchain-based fundraising. In this context, Security Token Offerings (STOs) have emerged as a potential alternative, combining distributed ledger technology with investor rights analogous to traditional equity instruments. This article examines the key legal and regulatory challenges faced by issuers of equity tokens within the European Union. It analyses the criteria for classification under EU financial law, outlines the applicable regulatory framework, and evaluates the impact of tokenisation models and cross-border offerings. Focusing on Estonia, Luxembourg and Poland, the study demonstrates that equity tokens remain subject to traditional securities regulation, resulting in fragmentation, legal uncertainty and significant compliance burdens.