Simply put
- The SEC has announced that tokenized stocks and bonds will still fall under existing U.S. securities laws, regardless of whether ownership details are recorded on-chain or off-chain.
- Issuers can present tokenized securities next to traditional equities, and tokens that are nearly identical might be classified as the same category legally.
- Interestingly, the announcement does not clarify if crypto-native assets and staking initiatives qualify as securities, leaving some significant regulatory questions open.
On Wednesday, three divisions of the SEC stated that placing securities onto a blockchain doesn’t alter their legal designation. Tokenized assets will encounter the same registration rules as traditional products.
In a statement issued by the agency’s Division of Corporate Finance, Exchanges and Markets, and Investment Management, they confirmed that tokens representing securities are still bound by federal securities laws.
“The form of issuance or how holders are recorded (for instance, on-chain versus off-chain) does not change the applicability of federal securities laws,” the statement indicates.
On-chain transactions refer to those security transfers that are logged directly onto a blockchain, rather than recorded in conventional databases.
Issuers can categorize tokenized securities as either a separate class or alongside standard equities. Notably, these securities might be treated the same under federal law if they share similar traits and confer comparable rights.
The differentiating factor lies in the fact that, instead of maintaining traditional securityholder files through standard database records, issuers keep these records on various cryptocurrency networks.
This announcement marks a change from how the SEC has approached these matters in the past. Over the last year, numerous lawsuits pertaining to cryptocurrencies have either been dismissed or resolved, including those against significant crypto firms questioning whether tokens and staking products constitute unregistered securities.
The guidance highlights that securities laws remain applicable irrespective of the technical format, a principle that has informed many cases the agency has opted not to pursue.
However, the recent statement does not address the more complex challenge highlighted by these lawsuits: whether crypto-native products like tokens or staking programs are considered securities in the first place.
Ethereum remains an area not fully reconciled, with some issues left unaddressed. In March 2023, the SEC initiated an internal investigation into “Ethereum 2.0” and issued a formal order marking Ethereum as a security in one of their lawsuits.
This investigation was later closed without any enforcement actions taken, and the SEC declined to comment on its findings, despite previous statements from former SEC Chairman Gary Gensler regarding Ether’s security status.
While the SEC seems to have softened its overall stance on cryptocurrencies, it continues to pursue cases, including one related to a Bitcoin mining service that is alleged to be offering securities.
“Tokenization doesn’t change anything legally.”
“Although the staff’s statement clearly states that ‘tokenization legally changes nothing,’ the underlying truth is that tokenization transforms everything operationally,” said Andrew Rossow, a public relations attorney and CEO of AR Media Consulting.
He added that the SEC’s stance does not clarify whether on-chain ledgers can replace traditional records. “Think of this infrastructure-wise. If blockchain acts as a de facto cap table or bond registry but the SEC still demands transfer agents and custodians, it renders blockchain more decorative than authoritative,” Rossow observed.
He further noted that while the SEC seems to be enforcing “technology neutrality,” this viewpoint could obscure non-neutral practices in operations.
“The implied expectation for industries to comply first and engage later appears to hinder structural reforms while shifting the responsibility onto entrepreneurs and innovative sectors,” Rossow concluded.
