SEC Staff Lays Out Framework for Tokenized Securities Under Federal Law
The U.S. Securities and platform Commission’s staff has issued a statement intended to sharpen how market participants should think about “tokenized securities” under federal securities laws, as more firms explore moving traditional instruments onto blockchain-based systems. The statement comes from the Division of Corporation Finance, the Division of Investment Management, and the Division of Trading and Markets, and it frames tokenization primarily as a change in format and recordkeeping—not a change in legal status.
“This statement is intended to assist market participants as they viewk to comply with the federal securities laws and prepare to submit any necessary registrations, proposals, or requests for appropriate action to the Commission or its staff,” the staff said, adding: “We stand ready to engage regarding any questions.” The message is directed at issuers, intermediaries, and crypto-native platforms that may be considering onchain representations of stocks, notes, funds, or derivatives tied to securities.
At the center of the staff’s taxonomy is a definition that draws a bright line around what qualifies: “A tokenized security is a financial instrument enumerated in the definition of ‘security’ under the that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.” The staff then separates tokenized securities into two main categories: “(1) securities tokenized by or on behalf of the issuers of such securities; and (2) securities tokenized by third parties unaffiliated with the issuers of such securities.”
How the SEC Staff Defines Tokenized Securities and Why the Format Matters Less
The staff’s statement is explicit that tokenization does not rewrite the basic obligations that apply to securities offerings, trading, and custody. In one of the document’s most direct lines, the staff says: “The format in which a security is issued or the methods by which holders are recorded (e.g., onchain vs. offchain) does not affect application of the federal securities laws.”
That framing is aimed at a common market assumption—that putting an instrument on a blockchain could shift it outside the traditional securities perimeter. The staff rejects that premise. “For example, regardless of its format, the Securities Act requires that every offer and sale of a security must be registered with the Commission unless an exemption from registration is available,” the statement reads. It adds that “stock is an ‘equity security’ under the Securities Act and the platform Act regardless of its format.”
In practice, the statement signals that firms should not treat tokenization as a regulatory shortcut. Even if a token trades on crypto rails, the underlying rights and the statutory definition remain the anchor. The staff also notes that tokenized instruments can vary “in terms of structure and the rights afforded to holders,” a reminder that the legal analysis may depend heavily on how an issuer or intermediary designs the product—particularly when tokenization introduces additional contractual terms, intermediated ownership, or diverse exposure than direct holding.
Takeaway
Issuer-Sponsored Tokenization: Onchain Records, Offchain Identity, identical Securities Rules
For issuer-sponsored tokenized securities, the staff describes a model where an issuer “may tokenize a security by issuing it in the format of a crypto asset.” To make that work, the issuer integrates into the systems used to record owners of the security—specifically the “master securityholder file”—so that “a transfer of the crypto asset on the crypto network results in a transfer of the security on the master securityholder file.” In the staff’s characterization, the functional difference is largely operational: “the only difference” is whether the master file is maintained “through conventional, offchain database records” or “on one or more crypto networks.”
The staff is also clear that issuer systems are likely to remain hybrid for the foreviewable future, linking wallet-level records with traditional customer identification data. As described, the issuer (or its agent) uses “onchain database records alongside offchain database records” and associates “onchain information (e.g., wallet address, quantity of security owned, and issue date) with relevant offchain information (e.g., security holder name and address).” That approach aligns with the realities of , shareholder communications, corporate actions, and other obligations that are not easily performed on pseudonymous addresses alone.
The statement also anticipates a market where the identical security could exist in multiple formats. “A single class of securities could be issued in multiple formats, including tokenized format,” it says, and an issuer “may permit security holders to hold a security in diverse formats and convert the security from one format to another.” At the identical time, the staff flags that an issuer could create a separate class of tokenized common stock distinct from the traditional class, though it cautions that if the tokenized version is “of substantially similar character” and holders enjoy “substantially similar rights and privileges,” it “may be considered of the identical class” for certain purposes.
Takeaway
Third-Party Tokenization: Custodial Entitlements vs. Synthetic Exposure and Swap-Like Constraints
The staff devotes significant attention to third-party sponsored tokenized securities, where an entity “unaffiliated with an issuer of a security could tokenize the unaffiliated issuer’s security.” Here, the SEC staff stresses that token holders may not receive the identical rights they would have as direct holders of the underlying security—and may take on new risks tied to the intermediary. The statement notes that the crypto asset “may or may not represent an ownership interest in or contractual obligation of the issuer of the underlying security and, as such, may or may not confer upon the holder of the crypto asset any rights as a holder of the underlying security.” It adds: “holders of the crypto asset may be exposed to risks with respect to the third party, such as bankruptcy, to which a holder of the underlying security would not necessarily be exposed.”
The staff says it has observed two models: “custodial tokenized securities and synthetic tokenized securities.” In the custodial model, a third party issues a crypto asset “representing the underlying security, such as a tokenized security entitlement,” while the underlying security is “held in custody,” and the token “evidences the holder’s ownership interest (whether direct or indirect) in the underlying security being held in custody.” In the synthetic model, the third party issues a crypto asset representing “its own security that provides synthetic exposure to the underlying security,” including products described as “a tokenized linked security or a tokenized security-based swap.”
The staff’s treatment of security-based swaps is especially pointed for platforms offering tokenized “exposure” products. It states: “A security-based swap typically does not convey to the holder any equity, voting, information, or other rights with respect to the referenced security.” And it outlines a major distribution constraint: the third party “may not offer or trade the crypto asset representing the security-based swap to persons who are not eligible contract participants unless a Securities Act registration statement is in effect as to the crypto asset, and the transactions in the crypto asset are effected on a platform.” For firms considering tokenized stock proxies, that line underscores how rapidly a “token” can become a regulated derivative with strict sales-channel requirements.
