SEC Reaffirms Tokenized Securities Are Still Securities, Urges Compliance Amid Blockchain Adoption

On July 9, the U.S. Securities and Exchange Commission (SEC) released an official statement addressing the growing interest in the tokenization of securities, reaffirming that the application of blockchain technology does not alter the legal classification of financial instruments.

While the SEC acknowledged that blockchain offers innovative avenues for distributing and trading securities in a “tokenized” format, Commissioner Hester Peirce made it clear that the underlying legal obligations remain unchanged.

“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,” said Peirce.

She stressed that market participants must carefully evaluate and comply with federal securities laws when transacting in these digital instruments. The statement further addressed emerging practices, such as issuers tokenizing their own securities or third parties issuing tokenized versions of securities they hold in custody. Peirce highlighted that these models may carry unique risks, including counterparty exposure.

Peirce encouraged developers and financial firms to proactively engage with the SEC as they structure tokenization offerings. She emphasized that the Commission is open to dialogue and willing to explore appropriate exemptions and regulatory updates when warranted by technological innovation.

Navigating Tokenization: Tax, Classification, and Regulatory Challenges

Tokenization is gaining significant momentum as regulators, institutions, and platforms increasingly embrace blockchain-based assets. There is growing interest in converting traditional equities and private investments into digital tokens, unlocking new opportunities for fractional ownership and increased market access.

According to PwC’s 2024 Global Crypto Report, tokenization is opening new investment channels in real-world assets (RWAs), but the tax implications remain unclear. In most jurisdictions, transactions involving tokenized assets are treated as taxable events. However, the exact tax treatment depends on how the token is structured, whether it directly represents the underlying asset or reflects economic rights through intermediaries such as special purpose vehicles (SPVs) or trusts. Because legal interpretations vary, each tokenization model must be assessed individually. PwC advises businesses and investors to seek tailored local tax guidance as global authorities increase scrutiny.

In line with these developments, Securitize CEO Carlos Domingo shared in a July 10 interview with Decrypt that stocks which are natively tokenized can provide the same shareholder rights, such as voting and dividend entitlements, as traditionally issued shares. This distinction is becoming increasingly important as more firms experiment with tokenized securities, which may lead to investor confusion, a concern recently echoed by the SEC.

Another key regulatory issue involves the classification of crypto assets as either commodities or securities. Commodities are standardized, tradable goods such as oil or gold, while securities represent ownership or investment interests like stocks and bonds. Securities are regulated by the SEC, which oversees their issuance and trading. On the other hand, commodities such as Bitcoin and Ethereum fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC), especially in the context of derivatives and institutional markets. The regulatory divide has led to uncertainty, particularly as many digital assets display characteristics of both categories.

The classification of crypto assets has a direct impact on both issuers and investors. Companies must carefully design their tokens to avoid potential SEC enforcement, while investors need to be aware of how regulatory decisions can affect token values, market access, and trading limitations. In a rapidly evolving landscape, staying informed and compliant is essential for all participants.