The SEC’s “Statement on Tokenized Securities” does not establish new law, but it does provide greater clarity on the application of existing federal securities laws to crypto assets. Most importantly, it reaffirms that the application of federal securities laws to tokenized securities depends not on the use of blockchains or crypto assets, but on the economic and legal substance of the rights conferred.
Categories of Tokenized Securities
As detailed by the SEC, a tokenized security is a financial instrument enumerated in the definition of “security” under the federal securities laws that is formatted as, or represented by, a crypto asset, with ownership records maintained on a crypto network, such as a blockchain or similar distributed ledger technology (DLT). While there are a variety of models used to tokenize securities, and they vary in terms of structure and the rights afforded to holders, tokenized securities generally fall into two categories:
Securities tokenized by or on behalf of the issuers of such securities; and
Securities tokenized by third parties unaffiliated with the issuers of such securities.
Issuer-Sponsored Tokenized Securities
In issuer-sponsored models, the issuer itself (or an affiliated party) tokenizes its securities. These structures may include:
On-chain systems where the blockchain serves as the official record of ownership; or
Hybrid systems where tokens interact with a traditional, off-chain master securityholder file.
These tokens represent the security itself. Accordingly, issuers must comply with applicable Securities Act and Exchange Act requirements, including registration (or exemption), disclosure, reporting, and transfer agent obligations.
Third-party Sponsored Tokenized Securities
In third-party models, an unaffiliated entity tokenizes an existing security or provides tokenized exposure to it. Common structures include:
Custodial models: A third party issues a crypto asset representing an entitlement to an underlying security that the third party holds in custody. The crypto asset evidences the holder’s indirect interest in the underlying security. Transfers are recorded on the third party’s recordkeeping systems, which may be on-chain or off-chain; and
Synthetic or derivative models: A third party issues a crypto asset that provides synthetic exposure to a referenced security, but does not confer rights in the underlying security. These may take the form of linked securities or security-based swaps that are formatted as crypto assets.
Depending on the structure and rights conveyed, these tokens may be treated as securities, security-based swaps, or other regulated financial instruments. Additional regulatory regimes may apply to custodians, broker-dealers, or swap counterparties involved in these arrangements.
Regulatory Implications
The SEC’s latest guidance reinforces that market participants involved in the issuance, trading, custody, or settlement of tokenized securities must assess whether they are required to register or comply with applicable regulatory regimes, including those governing broker-dealers, exchanges, clearing agencies, transfer agents, and investment advisers. Additionally, investor protection provisions—including registration requirements and anti-fraud rules—apply to tokenized securities transactions fully.
By reiterating that tokenized securities fall squarely within existing investor protection frameworks, the SEC underscores that:
Registration and full disclosure are generally required unless a specific exemption applies.
Anti-fraud provisions (e.g., Sections 10(b) of the Securities Exchange Act of 1934 and 17(a) of the Securities Act of 1933) continue to apply; and
Market intermediaries, including broker-dealers, clearing agencies, custodians, and exchanges, must maintain compliance with relevant regulations regardless of whether ownership is recorded on-chain or off-chain.
How We Can Help
The SEC guidance reaffirms the agency’s consistent regulatory stance that tokenization does not alter the application of federal securities laws. While blockchain technology may offer operational efficiencies, market participants must structure tokenized securities offerings within existing legal and regulatory frameworks. Accordingly, clients exploring tokenization initiatives should engage legal counsel early to evaluate regulatory implications, operational design, and compliance strategies.
Scarinci Hollenbeck represents issuers, intermediaries, in-house counsel, and market participants navigating this emerging area. Our experienced securities attorneys provide comprehensive guidance that allows our clients to capitalize on new opportunities while limiting legal risks.
The Legal Implications of Signing a Triple Net Lease
A triple net lease is a commercial lease in which the tenant pays the property’s real estate taxes, insurance, and maintenance costs, known as the three nets, in addition to base rent. They are most often used in freestanding retail and office buildings and in large single-tenant industrial properties, with terms that typically run 10 […]
When to Settle and When to Fight: A Litigator's Framework
Every lawsuit comes with a cost, and knowing when to settle a lawsuit is one of the most consequential decisions a business owner will face. Experienced litigators understand how to minimize cost and obtain certainty for their clients. For many business owners, the decision is viewed almost entirely through a financial lens: What will it cost […]
A Whistleblower Just Filed a Complaint Against Your Company: Here's What to Do Now
Few situations create more uncertainty than learning that an employee has filed a whistleblower complaint. Questions arise immediately: Is the allegation legitimate? Should the employee be placed on leave? Do we need to notify our insurance carrier? Are we now prevented from disciplining the employee if there are unrelated ongoing work related issues? There is […]
Assignment for the Benefit of Creditors: An Alternative to Bankruptcy for Distressed Businesses
When a business reaches the point where it can no longer service its debts or otherwise resolve its liabilities, management is often faced with a difficult question: is a bankruptcy filing necessary or is there another way to perform an orderly liquidation or sale of the business assets? While Chapters 7 and 11 of the […]
Breaking Down New Jersey’s “Mansion” Tax: What Buyers and Sellers Need to Know
For many years, the New Jersey Mansion Tax has been a significant consideration in high-value real estate transactions. Recent legislative changes, however, have substantially altered how the tax operates, including who is responsible for paying it and the amount owed in certain transactions. Whether you are purchasing, selling, or investing in New Jersey real estate, […]
Estate Planning for Digital Assets Under New Jersey Law
As our personal and financial lives increasingly move online, estate planning must evolve to address a new category of property: digital assets. From email accounts and social media profiles to cryptocurrency and cloud-stored business records, these assets often carry both financial and sentimental value. Yet, without proper planning, they can become inaccessible—or even lost—upon incapacity […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
