Risks of investing in tokens: what can go wrong and what to check

Investing in tokens carries real risks: you can lose some or all of your money, the revenue linked to the token can vary, you may not find a buyer, and there are technical, custody, issuer, regulatory and tax risks. Before investing, check who issues and holds the tokens, what rights they grant, what documents exist and how you could exit. Only invest what you can afford to lose.

Can you lose money investing in tokens?

Yes. This is the first and most important risk. You can lose part or all of the capital you invest. No token linked to a real asset guarantees that you get your money back or receive any payouts.

If the token grants rights over revenue, as in sports project tokenization, that revenue can fall or disappear. A bad sporting season, fewer events or a lost sponsor directly affect what gets paid out. We explain this in how a club makes money.

What financial risks does a token carry?

• Revenue variability: what the token pays depends on how the project performs, and the committed revenue may vary downwards.
• Liquidity: there may be no market, or no buyer when you want to sell, or only at a lower price.
• Counterparty risk: you rely on the issuer and managers doing what they agreed. If the issuer runs into financial trouble, your rights may be affected.
• Concentration: putting a lot into a single project magnifies the impact of any problem.

What technical and custody risks exist?

Tokens rely on technology. That adds risks a traditional investment does not have:

• Smart contracts: a bug in the code can lock or expose the tokens. An audit lowers the risk but does not remove it.
• Custody: if a third party holds your tokens, you depend on its security and solvency.
• Private keys: if you hold the tokens yourself and lose your keys, there is usually no way to recover them.
• Fraud and impersonation: fake websites, messages asking for your keys or links that copy real platforms.

You can read how we approach these issues on security.

How are tokens regulated in Spain and the EU?

The rules depend on what each token is in legal terms. Not all tokens are regulated the same way.

MiCA excludes crypto-assets that already qualify as financial instruments. A token granting rights over an asset's revenue may fall into that second category, depending on its design. That classification decides the issuer's obligations and the protection you get. Rules can also change and affect projects already under way.

Tax matters too. Gains, payouts and holding tokens can all have tax consequences. Ask a tax adviser about your own situation.

What should you check before investing?

Use this checklist before buying any token linked to an asset:

1. Issuer identity: legal name, registered address, company registration and people in charge.
2. Token rights: exactly what you receive, over which revenue, at what percentage and for how long.
3. Documents: whitepaper, prospectus or information document, contracts and legal terms. If they are missing or vague, be wary.
4. Regulatory framework: which rules apply to the token and whether the issuer or platform is authorised or registered where required. You can check on the CNMV website.
5. Custody: who holds the tokens and what happens if that entity fails.
6. Audits: whether the smart contract and the accounts have been reviewed by independent third parties.
7. Exit options: whether you can sell or transfer the token, where, and with what limits.
8. Ongoing reporting: how often you will be told about revenue and costs.

If you are unsure about the basics, start with what is asset tokenization and read the full risk warning.

This article is for information only and is not financial, legal or tax advice, nor an investment recommendation. Before investing, consider your personal situation and, if needed, consult an independent professional.