In July 2025, SEC Commissioner Hester Peirce, in the aptly named Enchanting, but Not Magical: A Statement on the Tokenization of Securities, asserted that: “As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset. Tokenized securities are still securities.”

In a joint statement issued on Jan. 28 (the Statement), the SEC’s Divisions of Corporation Finance, Investment Management, and Trading and Markets agreed with Commissioner Peirce’s remarks by outlining their views on the taxonomies associated with tokenized securities and their status under the U.S. securities laws — namely, that tokenized securities are securities governed by traditional securities laws.

Not Magical, Just Securities

As defined in the Statement, “[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, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.”

In other words, the Statement sees a tokenized security as a traditional security that (i) is represented by a digital asset and (ii) has accompanying ownership records maintained either (or both) on a digital asset network or in traditional paper form.

The Statement does not provide any exemptive relief or establish a new regulatory framework for these tokenized assets. Instead, echoing the Dec. 2025 no-action letter issued to DTC, the Statement confirms the Staff’s position that existing U.S. federal securities laws apply to tokenized securities.

The Statement goes on to define four prevailing taxonomies applicable to tokenized securities and their relation to the master systems used to record a security’s owners.

Tokenized Securities in Four Flavors

The Statement identifies two primary models within which securities may be tokenized: (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.

The Statement makes clear that no matter which variety of tokenized security is at issue, the existing securities laws apply — the method of record management and retention does not change the status of the tokenized security as a security subject to applicable securities laws.

Issuer-Sponsored Tokenized Securities 

• Flavor 1: Issuer-Sponsored Onchain Model

  • In this (most basic) model, an issuer may tokenize a security by issuing it in the format of a crypto asset by directly integrating distributed ledger technology (a digital asset network) into the systems the issuer uses to record ownership of the security.

  • Under this approach, a transfer of the crypto asset on the digital asset network results in a transfer of the security on the master securityholder file.

  • In this model, the only difference between the tokenized security and securities issued in traditional format is that the “master securityholder file” is located on a blockchain or digital asset network instead of a traditional database record.

• Flavor 2: Issuer-Sponsored Notification Model

  • Instead of using a digital asset network to maintain ownership records, an issuer may tokenize a security by simultaneously issuing (i) the security in a traditional manner (i.e., offchain) and (ii) a digital asset to security holders.

  • In this model, the digital asset does not convey any rights, obligations, or benefits of the security, and the digital asset and the digital asset network are not the master database in which ownership information is stored. Instead, the digital asset serves to provide notice to the issuer of the holder’s intent to transfer the asset.

  • When a digital asset transfer is effectuated, it provides notice to the issuer to record the transfer of ownership of the security on the master securityholder file — making the digital asset transaction a bona fide securities transaction while maintaining the offchain database as the master securityholder file.

The Statement additionally clarified that the issuer-sponsored model is not limited to the offering of either a single all-onchain or alternatively all-offchain securities tokenization, noting that:

“A single class of securities could be issued in multiple formats, including tokenized format. Similarly, an issuer may permit security holders to hold a security in different formats and convert the security from one format to another. 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.”

The Statement further noted that, while different classes of securities could be offered in different formats, if a security is materially similar to another security, even when offered in a different format, it may be considered of the same class for certain purposes under the securities laws.

Third Party-Sponsored Tokenized Securities

Third parties unaffiliated with an issuer also may seek to tokenize an issuer’s security. Third party models, by definition, vary, as do the rights associated with the tokenized securities they may issue — and, when issued by a third party, the crypto asset may or may not represent an ownership interest in or contractual obligation of the issuer.

• Flavor 3: Custodial Tokenized Securities (Tokenized Security Entitlements)

  • A third party may tokenize a security issued by another party by creating a security entitlement that is formatted as a digital asset and issuing that entitlement in either of the models defined above relative to issuer-sponsored tokenized securities.

  • The third party might accomplish this by integrating Distributed Ledger Technology (DLT) into the systems that it uses to record entitlement holders, such that a transfer of the crypto asset results in a transfer of the security entitlement on the third party’s records. Alternatively, the third party could use the transfer of the digital asset as a notice to update an offchain record system it uses to record entitlement holders.

• Flavor 4: Custodial Synthetic Tokenized Securities (Linked Securities)

  • A third party may tokenize a security issued by another person by issuing a linked security formatted as a digital asset. The term “linked security” means a security issued by the third party that provides synthetic exposure to a referenced security, but which is not an obligation of the issuer of the referenced security and does not confer any rights or benefits from the issuer of the referenced security.

 A note on securities-based swaps (a type of linked security)

In its discussion of linked securities, the Statement observed  that “[a] third party may tokenize a security issued by another person by issuing a security-based swap (a type of linked security) formatted as a crypto asset,” and noted that third parties may not offer or sell a crypto asset representing a security-based swap to persons who are not eligible contract participants without an effective Securities Act registration statement (as to the crypto asset) and on-exchange execution.

Tokenized Securities Are Securities, No Matter the Format or Recordkeeping Method

The Statement builds on the references and technical considerations confirmed by the Depository Trust Company (DTC) no-action letter and the SEC’s Statement on the Custody of Crypto Asset Securities by Broker-Dealers, (both issued in Dec. 2025). More fundamentally, though, the Statement reinforces the Staff’s previously expressed view that tokenized securities are still governed by existing securities laws and emphasizes that a tokenized asset’s format and recordkeeping method do not affect the asset’s status as a security.

The Statement also reflects a growing trend in digital asset and crypto regulatory discourse seeking increased adoption and institutional participation in tokenized assets and stablecoins — including the Commodity Futures Trading Commission’s (CFTC) December 2025 guidance on the use of tokenized assets as collateral and ongoing discourse relating to the Digital Asset Market Clarity Act (CLARITY Act) and Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act).

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