Securities Classification of Tokenized Real-World Assets

1. Global Landscape --- Classification Models

The classification of tokenized real-world assets (RWAs) as securities is the single most consequential regulatory determination facing issuers, platforms, and investors in the tokenized asset market. Across 21 jurisdictions surveyed, six distinct classification models have emerged. Each reflects a jurisdiction's legal tradition, market maturity, and policy objectives. No model is universally superior; each involves trade-offs between legal certainty, flexibility, innovation accommodation, and investor protection.

Model A: Substance-Over-Form / Functional Test

Jurisdictions:

United States,

Australia,

Canada,

Brazil

How it works: Regulators apply an open-ended, judicially developed test to determine whether a tokenized asset constitutes a security based on its economic substance, not its technological form. The archetypal test is the US Howey test (SEC v. W.J. Howey Co., 328 U.S. 293 (1946)), which classifies an instrument as an "investment contract" --- and therefore a security --- if it involves (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profits, (4) derived from the essential managerial efforts of others. The SEC's January 28, 2026 joint statement from the Divisions of Corporation Finance, Trading and Markets, and Investment Management confirmed that tokenization does not alter this analysis: "the format of issuance or technology used for recordkeeping, whether onchain or offchain, does not alter the application of the federal securities laws." (SEC Joint Statement, 28 January 2026)

Canada applies a functionally equivalent test derived from Pacific Coast Coin Exchange v. Ontario Securities Commission (CSA Staff Notices 46-307, 46-308), on a substance-over-form basis. Brazil's CVM applies an adapted Howey test --- four questions under Article 2, Item IX of Law 6,385/76 (CVM Guidance Opinion No. 40, 11 October 2022), sorting tokens into payment / utility / asset-backed (security) categories. Australia applies the Corporations Act 2001 "financial product" definition --- a token is a financial product if it performs a traditional financial function (security s.764A, managed investment scheme s.9, derivative s.761D, non-cash payment facility s.763D) --- supplemented by ASIC Information Sheet 225 (updated October 2025), which uses a functional approach "focusing on what the token does rather than how it is built." (ASIC Media Release 25-250MR)

For tokenized debt instruments specifically, the

US applies the Reves test (Reves v. Ernst & Young, 494 U.S. 56 (1990)), which presumes a "note" is a security unless it falls within a judicially recognized exception. Tokenized bonds and debt instruments broadly distributed for investment purposes satisfy this presumption.

Outcomes: Most tokenized RWAs --- including tokenized bonds, fund units, real estate interests, and revenue shares --- are classified as securities because they plainly satisfy all prongs of the functional test. The principal uncertainty concerns tokens at the boundary: utility tokens with secondary market value, governance tokens, and fractional interests in non-financial assets.

Strengths: Captures novel instruments that do not fit enumerated categories. Prevents regulatory arbitrage through relabeling. Adapts to technological change without legislative amendment.

Weaknesses: Creates classification uncertainty, particularly at the boundary. Relies heavily on regulatory guidance and enforcement precedent. Compliance costs are high because issuers cannot rely on bright-line rules. The US Howey test, as SEC Commissioner Peirce has noted, may lead to over-classification where a token offering involves an initial investment contract that later dissipates as the project decentralizes.

Model B: Enumerated Instrument Lists

Jurisdictions:

EU (MiFID II),

UK (FSMA 2000 / RAO),

Ireland (EU two-track),

Cayman Islands (SIBA Schedule 1), British Virgin Islands (SIBA investment list)

How it works: Securities regulation applies to a defined list of "financial instruments" (EU), "specified investments" (UK), or "investments" (Cayman/BVI under their Securities Investment Business Acts) set out in legislation. Tokenized assets are classified as securities if they match the characteristics of an instrument on the list --- transferable securities, units in collective investment schemes, money-market instruments, derivatives, etc. The technology used to issue or record the instrument is irrelevant.

In the EU, the boundary between the Markets in Crypto-Assets Regulation (MiCA, Regulation (EU) 2023/1114) and MiFID II/MiFIR is the critical determination. Article 2(4) of MiCA explicitly excludes crypto-assets that qualify as financial instruments under MiFID II. ESMA's Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments (ESMA75453128700-1323), published 19 March 2025, provide nine classification criteria for making this determination on a substance-over-form, case-by-case basis. (ESMA Guidelines, 19 March 2025)

Ireland applies precisely this EU two-track test through the Central Bank of Ireland as single national competent authority: a transferable security or financial instrument under MiFID II (S.I. 375/2017) is a security token (MiCAR excluded), with no separate Irish statutory definition.

The

UK approach under FSMA 2000 and the Regulated Activities Order (RAO) defines "specified investments" including shares, debentures, government and public securities, units in collective investment schemes, and rights under contracts for differences. The FCA's PS19/22 four-category taxonomy treats a security token as a "specified investment" --- substance over labels. The Digital Securities Sandbox (DSS), jointly operated by the FCA and Bank of England, became operational in 2024, with 16 Gate 1 entrants as of December 2025 (including HSBC, J.P. Morgan, Euroclear, Tradeweb, and LSEG B3). (Bank of England, DSS Guidance)

The two Caribbean offshore centres apply enumerated-list tests without any Howey/investment-contract concept. The

Cayman Islands Securities Investment Business Act (SIBA, 2020 Revision) tests tokens against the Schedule 1 list of securities, and its definition expressly includes virtual assets that represent or are convertible into Schedule 1 securities or derivatives; the 2026 tokenised-funds framework (in force 24 March 2026) channels "digital equity token"/"digital investment token" instruments into the existing funds and securities regimes (and out of the VASP regime). The British Virgin Islands runs a fact-specific SIBA "investment" enquiry against an exhaustive statutory list (shares, fund interests, debentures, derivatives): a token is an investment only where its rights are synonymous with or referable to a listed instrument type, with utility and payment tokens generally outside.

Outcomes: A tokenized bond is a bond; a tokenized fund unit is a fund unit. This provides high clarity for instruments that map directly to enumerated categories. Difficulty arises for novel instruments --- fractional real estate tokens, revenue-sharing tokens, or governance tokens --- that do not cleanly map to any listed category.

Strengths: High legal certainty for standard instruments. Harmonized across a large economic bloc (EU: 27 member states; EEA: 30 states with passporting). Familiar to existing market participants. The Cayman and BVI lists give offshore issuers a bright-line route into (or expressly out of) securities regulation when structuring SPVs and funds.

Weaknesses: Slow to adapt to novel instrument types (requires legislative amendment to expand the list). Can create gaps where tokenized instruments fall between listed categories. The EU's dual-track structure (MiCA vs. MiFID II) creates a classification boundary that requires expert legal analysis on a case-by-case basis. The Caribbean centres deliberately leave market-infrastructure and retail distribution to onshore venues, offering no DLT-issuance/settlement statute and no passporting.

Model C: Token-Specific Legislation

Jurisdictions:

Switzerland (DLT Act),

Liechtenstein (TVTG / Blockchain Act),

Germany (eWpG)

How it works: The jurisdiction creates dedicated legislation that integrates tokenized assets into existing legal frameworks through specific statutory categories.

Switzerland's DLT Act (Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology, adopted 25 September 2020, in force 1 February 2021 / 1 August 2021) amended ten existing federal laws, introducing the "ledger-based security" (Registerwertrecht) under Articles 973d--973i of the Code of Obligations (CO). A ledger-based security is a right registered in a securities ledger that can only be asserted and transferred via that ledger. FINMA classifies tokens by economic function under its 16 February 2018 ICO Guidelines (payment, utility, asset tokens); asset tokens representing debt, equity, or entitlements to dividends or interest are securities, treated under FMIA/FinSA, and a January 2024 Federal Administrative Court ruling confirmed that pre-functional utility tokens are asset tokens. (Library of Congress, DLT Act)

Liechtenstein's Token and Trustworthy Technologies Act (TVTG), in force 1 January 2020, introduced the Token Container Model --- a legal abstraction separating the token (a digital representation on a trustworthy technology system) from the right it represents. Under Article 2(1)(d) TVTG, a token is "information on a TT system which can represent claims or rights of membership vis-a-vis a person, rights in rem, or other absolute or relative rights." The TVTG itself provides only civil-law infrastructure; existing financial market legislation determines whether the contained right is a security, in which case prospectus law, MiFID II-based investment-firm regulation, and MAR apply alongside the TVTG. (FMA Liechtenstein, TVTG)

Germany's Electronic Securities Act (eWpG, Gesetz uber elektronische Wertpapiere, 10 June 2021) eliminated the requirement for physical securities certificates, introducing "crypto securities" (Kryptowertpapiere) recorded on tamper-proof distributed ledgers. The framework was progressively expanded: bearer bonds (eWpG, 2021), fund units (KryptoFAV, 18 June 2022), and registered shares (ZuFinG, effective 1 November 2025). Where a crypto security qualifies as a MiFID II financial instrument, full EU securities regulation (MiFID II/MiFIR, Prospectus Regulation, CSDR, MAR) applies; the eWpG supplies the domestic issuance infrastructure. (BaFin, eWpG)

Outcomes: High legal certainty for instruments falling within statutory categories. Tokenized bonds, shares, and fund units have explicit legal standing. Switzerland's ledger-based securities have the same legal effect as traditional certificated or uncertificated securities.

Strengths: Purpose-built for DLT-based instruments. Provides property law certainty (ownership, transfer, insolvency segregation). Liechtenstein's asset-agnostic model accommodates novel asset classes without legislative amendment.

Weaknesses: Switzerland and Liechtenstein are non-EU jurisdictions (Liechtenstein has EEA passporting and, since June 2025, applies MiCAR; Switzerland does not). Germany's eWpG is instrument-specific, requiring sequential legislative expansion to cover new asset types. Smaller domestic markets in Switzerland and Liechtenstein.

Model D: Hybrid / Layered Approach

Jurisdictions:

Singapore (SFA + PS Act + FSMA),

Hong Kong (SFO + AMLO)

How it works: Multiple legislative instruments create layered regimes, with classification determining which layer applies. Singapore uses the Securities and Futures Act 2001 (SFA) for tokenized capital markets products, the Financial Advisers Act 2001 (FAA) for advisory, and the Payment Services Act 2019 (PS Act) for digital payment tokens. Classification turns on economic substance: a token is a capital markets product if it represents equity, a debenture, a unit in a CIS, or a derivatives contract under the SFA. MAS issued the revised Guide on the Tokenisation of Capital Markets Products on 14 November 2025, covering the entire tokenization lifecycle --- issuance, secondary trading, custody, and redemption. (MAS Guide on Tokenisation of CMPs, 14 November 2025)

Hong Kong's SFC applies a "see-through" approach: a token is a "security" if the underlying right meets the SFO statutory definition (shares, debentures, CIS units), regardless of the blockchain, with no separate "security token" category. A tokenized government bond is regulated as a bond; a tokenized fund unit is regulated as a fund unit. The SFC's two circulars of 2 November 2023 (updated 20 April 2026) superseded the more restrictive March 2019 position that treated all security tokens as complex products, and the April 2026 circular permits 24/7 retail secondary trading of tokenised SFC-authorised products on licensed VATPs. (SFC Circulars, November 2023)

Outcomes: Clear classification for standard instruments; regulatory pathway accommodates the full tokenization lifecycle. Both jurisdictions have active institutional tokenization programs (Project Guardian in Singapore with 40+ participants; Project Ensemble / EnsembleTX and HKSAR digital green bonds in Hong Kong).

Strengths: Leverages existing, well-understood securities law. Provides comprehensive lifecycle coverage. Both jurisdictions operate as major international financial centres, attracting cross-border activity. Sandbox programs (MAS Regulatory Sandbox; HKMA EnsembleTX) facilitate innovation within regulatory guardrails.

Weaknesses: Multi-act architecture can be complex to navigate for novel instruments. DeFi protocols and decentralized tokenization platforms remain outside the framework. Classification still requires case-by-case analysis for novel token types.

Model E: Activity-Based Classification

Jurisdictions:

Japan (FIEA / ERTRs),

South Korea (FSCMA)

How it works: Rather than classifying tokens by their characteristics alone, the jurisdiction creates a specific statutory category for tokens with security-like features and assigns them to a defined regulatory tier based on the activity they represent.

Japan's Financial Instruments and Exchange Act (FIEA) established the category of Electronically Recorded Transferable Rights (ERTRs) through amendments effective May 2020. ERTRs are rights that would ordinarily qualify as Type II securities (e.g., collective investment scheme interests) but, because they are recorded on electronic devices and capable of transfer via electronic means, are elevated to Type I securities status, subjecting them to stricter disclosure, registration, and conduct requirements. The classification applies regardless of the specific DLT technology used. The FIEA was further amended on 1 November 2024 to bring tokenized real estate specified joint enterprise agreements under its scope, and a separate crypto-asset reclassification bill (shifting crypto-assets from the Payment Services Act to the FIEA) was cabinet-approved on 10 April 2026, pending Diet passage, expected effective ~FY2027. Cumulative public STO issuance reached JPY 333.3 billion by FY2025 (FY2025 public issuance JPY 165 billion). (So & Sato, STOs in Japan; GLI, Japan Blockchain 2026)

South Korea's FSC announced its STO framework on 6 February 2023, with enabling legislation (amendments to the FSCMA / Capital Markets Act and the AERSB / Electronic Securities Act) passed by the National Assembly on 15 January 2026 and in force from January 2027. The FSC applies a two-part test: (1) the efforts of a third party (the issuer) are indispensably significant to business success, and (2) there is a promise to distribute profits from the business. Security tokens fall under the FSCMA (the VAUPA, in force 19 July 2024, explicitly excludes them), and issuers must register with the Korea Securities Depository (KSD). (FSC Press Release; Kim & Chang Analysis)

Outcomes: High clarity for instruments within the statutory category. Japan's market is the most mature in Asia-Pacific for real estate security tokens. South Korea's framework remains pre-operational (sandbox designations only until January 2027).

Strengths: Creates dedicated regulatory infrastructure (Japan's JSTOA self-regulatory organization; South Korea's KSD mandatory registration). Provides bright-line rules for issuers and intermediaries.

Weaknesses: Japan's Type I FIBO registration creates high barriers to entry (minimum net capital JPY 50 million). South Korea's multi-year gap between announcement (2023) and effective date (2027) delays market development. Novel token types not fitting the statutory category remain in regulatory limbo.

Model F: Multi-Zone / Competition-Based Framework

Jurisdictions:

UAE (VARA + ADGM + DIFC + CMA), Abu Dhabi (ADGM),

Bahrain (CBB)

How it works: Multiple regulatory zones --- within a single country, or operating as standalone common-law financial free zones --- each establish their own classification framework, creating regulatory competition and optionality. The UAE operates a multi-regulator architecture: VARA (Dubai mainland) classifies virtual assets including Asset-Referenced Virtual Assets (ARVAs); ADGM FSRA classifies "digital securities"; DIFC DFSA defines "Investment Tokens" as rights substantially similar to specified investments; and the federal Capital Market Authority (CMA, which replaced the SCA VASP regime via CMA Decision No. 4/R.M/2026) regulates virtual asset platforms federally.

Abu Dhabi (ADGM) is profiled here as a standalone jurisdiction because the FSRA is a single regulator operating its own English common-law system. Its classification turns on the FSMR section 58(2)(b) deeming power: a token exhibiting the economic/legal features of a Security (Schedule 1 Part 3 --- shares, debentures, sukuk, fund units) is deemed a "Digital Security" on a case-by-case basis and regulated identically to its conventional counterpart under the FSMR, MKT, and FUNDS rulebooks. This deeming-based approach resembles Singapore's and Switzerland's substance tests but is delivered through a single-regulator common-law venue (Digital Securities Guidance VER02, 24 February 2020).

Bahrain's CBB classifies crypto-assets as securities if they exhibit characteristics of traditional securities --- giving rights to financial entitlements (bonds), profit-sharing (equity), decision-making power (voting rights), or a monetary claim --- under its Crypto-Asset Module (CRA), first issued February 2019 and amended March 2023 to include Digital Token Offerings (DTOs). (CBB Press Release on Digital Tokens)

Outcomes: Issuers and platforms can select the regulatory zone best suited to their business model. The UAE's Dubai Land Department launched its Real Estate Tokenisation Project in March 2025 --- the first real estate registration entity in the Middle East to implement tokenization on property title deeds, with fractional ownership starting from AED 2,000 and market value projected to reach AED 60 billion by 2033. Abu Dhabi's FSRA approved the Realize T-BILLS Fund (the first tokenized fund domiciled in ADGM, 31 October 2024). (Dubai Media Office, March 2025)

Strengths: Multiple entry points accommodate diverse business models. Zero personal income tax and capital gains tax (UAE, Abu Dhabi, Bahrain) create strong economic incentives. Regulatory sandboxes (DFSA Tokenisation Sandbox received 96 expressions of interest; ADGM RegLab; CBB sandbox approved approximately 30 companies) provide structured testing environments.

Weaknesses: Regulatory fragmentation across the UAE's federal/free-zone structure increases compliance complexity. Enforcement track records are shorter than those in established financial centres. VAT treatment of tokenized transactions remains unresolved (UAE/Abu Dhabi 5% VAT, financial-services exemptions per federal rules).

2. Comparative Analysis Table

The following table compares all 21 jurisdictions across critical classification dimensions. For each, the "Tokenized Bond = Security?" column indicates whether a tokenized corporate bond is treated as a regulated security. "Tokenized Fund = Security?" indicates whether a tokenized collective investment scheme unit is regulated. "Fractional RE Token = Security?" indicates whether a fractional real estate token (not a REIT but a direct fractional interest) triggers securities regulation.

3. The Critical Boundary Questions

3.1 When Does a Tokenized Asset Cross from "Unregulated Utility" to "Regulated Security"?

Across all surveyed jurisdictions, the boundary between an unregulated token and a regulated security depends on the economic substance of the rights conferred, not the label applied by the issuer.

The US approach provides the most granular guidance. The SEC's FinHub Framework for "Investment Contract" Analysis of Digital Assets (3 April 2019) identifies specific factors: whether purchasers reasonably expect profits from the efforts of others, whether the token is marketed for investment, whether there is a secondary trading market, and whether the issuer retains a role in the enterprise. For tokenized RWAs specifically, the analysis is straightforward: tokens representing bonds, fund units, real estate interests, or equity shares almost invariably satisfy all Howey prongs because investors purchase fractional interests in assets managed by identifiable entities with the expectation of returns. (SEC FinHub Framework)

The EU approach uses the ESMA guidelines (19 March 2025) to determine whether a crypto-asset qualifies as a financial instrument. The guidelines apply nine criteria on a substance-over-form basis, focusing on whether the token confers rights functionally equivalent to MiFID II instruments. Crypto-assets that qualify as financial instruments fall outside MiCA and into the full MiFID II/Prospectus Regulation regime.

Ireland and the other EU member states apply this same two-track test through their national competent authorities.

Switzerland draws the line based on economic function: if a token represents an asset --- debt, equity, or entitlements to dividends or interest --- it is an asset token and a security. The Swiss Federal Administrative Court confirmed in January 2024 that pre-functional utility tokens (voucher tokens not yet usable for their intended purpose at issuance) qualify as asset tokens subject to securities regulation.

The enumerated-list offshore centres draw the line by reference to whether a token's rights map to a statutory list. In the

Cayman Islands, a token is a security only if it falls within the SIBA Schedule 1 list (the definition expressly catching virtual assets that represent or convert into those instruments); in the BVI, a token is an "investment" only where its rights are synonymous with or referable to a SIBA-listed instrument, leaving sole issuance of a plain utility or payment token outside the regime entirely.

Practical boundary indicators across jurisdictions:

1. Expectation of financial return --- The single most important factor. Tokens that confer a right to interest, dividends, profit shares, or capital appreciation are securities in virtually all jurisdictions.
2. Reliance on third-party management --- Tokens whose value depends on an identifiable manager, issuer, or platform operator are securities. (South Korea's two-part test makes this explicit: "third-party effort indispensably significant to business success".)
3. Transferability and secondary markets --- Tokens designed for secondary trading are more likely to be classified as securities.
4. Pooled investment structures --- Tokens representing fractional interests in a pooled asset are classified as collective investment scheme units in most jurisdictions.

3.2 How Do Jurisdictions Treat Tokenized Versions of Already-Regulated Instruments?

All 21 jurisdictions apply the principle of technology neutrality: a tokenized version of an already-regulated instrument remains subject to the same regulation as its non-tokenized counterpart.

• The US SEC stated on 28 January 2026: "A security does not cease to be a security solely because it is tokenized or recorded on a blockchain." The SEC distinguishes between issuer-sponsored tokenized securities (where the issuer directly tokenizes) and third-party tokenized securities (where unaffiliated parties create tokens representing referenced securities, potentially triggering additional Investment Company Act or security-based swap regulation).
• The EU treats tokenized transferable securities as MiFID II financial instruments subject to the Prospectus Regulation (EU) 2017/1129, MiFID II/MiFIR, CSDR, and MAR. The DLT Pilot Regime (EU 2022/858) provides targeted exemptions for DLT-based market infrastructures, with six authorized operators on the ESMA register as of January 2026 (CSD Prague, 21X, 360X, Axiology/Lithuania, LISE/France, Securitize/Spain). (ESMA DLT Pilot Regime Report, June 2025)
• Abu Dhabi (ADGM) applies the FSMR section 58(2)(b) deeming power so that tokenized offerings of Securities (shares, debentures, sukuk, fund units) are regulated identically to conventional counterparts; an Approved Prospectus (FSMR s.61) is required unless the Exempt Offer route applies, and the instrument is still a deemed Security.
• Singapore MAS states: "The tokenisation of a CMP does not alter its underlying legal and economic substance. Tokenised CMPs continue to be regulated under the Securities and Futures Act 2001 and the Financial Advisers Act 2001 in the same manner as their non-tokenised counterparts."
• Hong Kong SFC applies the "see-through" approach: the November 2023 circulars (updated April 2026) explicitly superseded the 2019 position that all security tokens were complex products, permitting retail access to tokenized securities that are not complex in their underlying form.

3.3 Fractional Ownership Tokens: Real Estate, Art, Commodities

Fractional ownership tokens --- representing divided interests in real estate, art, commodities, or other physical assets --- trigger securities classification in most jurisdictions when structured as pooled investments where token holders lack day-to-day control.

Real estate fractional tokens are the most common use case:

• Japan explicitly brought tokenized real estate specified joint enterprise agreements under the FIEA through the November 2024 amendment. Real estate dominates the Japanese STO market (real estate trust beneficiary ~85% of FY2025 issuance by value).
• UAE/Dubai launched the most advanced government-led program: the DLD Real Estate Tokenisation Project (March 2025) puts property title deeds on-chain via the XRP Ledger, enabling fractional ownership from AED 2,000, with secondary market trading operational (a USD 5 million offering in February 2026) and a projected AED 60 billion market by 2033.
• South Korea granted FSC sandbox designations to six companies for tokenized real estate trust beneficiary securities.
• Australia classifies tokenized real estate pools as managed investment schemes (MIS) under the Corporations Act, requiring an Australian Financial Services Licence.
• Singapore treats fractional real estate tokens as likely units in a collective investment scheme under the SFA if the structure involves pooled capital and third-party management.
• Cayman Islands and BVI typically host the fractional-ownership SPV or fund itself: where the fractional interest is a fund interest or a SIBA security, it falls into the funds/SIBA regimes, with the offshore vehicle providing the bankruptcy-remote structuring layer rather than a retail trading venue.

Art and collectibles present greater classification difficulty. Liechtenstein's Token Container Model is the most flexible framework, with VP Bank demonstrating the tokenization of artworks and watches directly under the TVTG without requiring a Special Purpose Vehicle. South Korea has active platforms (Musicow for music royalties; multiple art fractionalization platforms) operating under FSC sandbox designations.

Tokenized commodities generally fall outside securities regulation when they represent direct ownership of physical commodities (e.g., tokenized gold). However, in the US, commodity-based tokens may trigger CFTC jurisdiction as commodity interests, and pooled commodity investments may constitute securities under the Howey test. Bahrain's ATME platform offers gold-backed tokens (one token = one kilogram of gold) under CBB Category 3 licensing.

3.4 DeFi Protocols Tokenizing RWAs

Decentralized finance (DeFi) protocols that tokenize RWAs represent the most significant regulatory gap across all surveyed jurisdictions. No jurisdiction has enacted comprehensive regulation specifically designed for decentralized tokenization platforms.

Current regulatory approaches:

• United States: DeFi protocols tokenizing securities-like RWAs must comply with federal securities laws. Most US-based RWA tokenization platforms (Securitize, Centrifuge, Maple Finance) structure their offerings through regulated legal wrappers (SPVs, trusts) under Reg D 506(c) for US investors and Reg S for non-US investors. The April 2026 SEC staff statement that Covered User Interfaces need not register as broker-dealers (subject to 20+ conditions) signals an evolving, more accommodative posture.
• EU: MiFID II requires an identified operator for any trading platform, effectively excluding fully decentralized venues. The AMF's March 2020 legal analysis confirmed that operating a trading platform for security tokens requires MTF or OTF authorization, which "excludes decentralized platforms (requiring an identified manager)."
• Singapore: MAS's technology-neutral approach means DeFi protocols facilitating regulated activities must hold appropriate licences, but enforcement against truly decentralized protocols remains unclear.
• Cayman Islands / BVI: Both centres regulate the service rather than the protocol --- sole issuance of a virtual asset is not in itself a VASP activity (BVI) or is carved out of the VASP "issuance" definition for tokenised funds (Cayman 2026 framework) --- so decentralized issuance can be domiciled offshore while securities and AML obligations attach to identifiable operators and issuers.
• Japan and South Korea: DeFi platforms are explicitly unaddressed in enacted legislation, representing a noted gap.

The practical reality: Most RWA tokenization in DeFi operates through "permissioned DeFi" --- hybrid structures where compliance (KYC/AML, accredited investor verification, transfer restrictions) is enforced at the smart contract level, while secondary trading occurs on decentralized infrastructure. This model preserves the efficiency benefits of DLT-based settlement while satisfying securities regulation requirements.

3.5 Tokenized Money Market Fund Units: The BlackRock BUIDL Model

Tokenized money market fund units represent the highest-volume tokenized RWA category globally. BlackRock's USD Institutional Digital Liquidity Fund (BUIDL), tokenized by Securitize, exceeded $2.5 billion in AUM by early 2026, investing in US Treasury bills and repurchase agreements. Each BUIDL token is fully backed 1:1 by real-world assets and pays daily interest. (CCN, BlackRock BUIDL)

Classification across jurisdictions:

• US: BUIDL operates under a Section 3(c)(7) exemption from the Investment Company Act (limited to qualified purchasers) combined with Reg D for the securities law exemption. Franklin Templeton's FOBXX is a registered fund under the Investment Company Act (Rule 2a-7 government money market fund), making it the first US-registered mutual fund using a public blockchain as the system of record.
• EU: Tokenized fund units that qualify as UCITS or AIF units are regulated under the UCITS Directive or AIFMD. Luxembourg's Blockchain Law IV (19 December 2024) provides the most comprehensive statutory basis for tokenized fund units in the EU, covering UCITS, AIFs, SIFs, RAIFs, and SICARs.
• Ireland: As the leading EU money-market and ETF fund domicile, Ireland's regulated funds underlie external tokenization platforms (e.g., JP Morgan Kinexys, Archax); retail tokenised-fund exposure is limited to tokenised units of traditional-asset funds, with QIAIFs restricted to qualifying investors (minimum EUR 100,000) and UCITS/RIAIFs barred from direct digital-asset exposure.
• Cayman Islands: Tokenised fund interests are channelled into the Mutual Funds / Private Funds Acts under the 2026 tokenised-funds framework (nine tokenised investment funds were conditionally registered with CIMA by 29 April 2026), with parity of tokenised and traditional rights mandated and the issuance excluded from the VASP regime.
• Abu Dhabi (ADGM): The Realize T-BILLS Fund (an OEIC, $RBILL on Ethereum and IOTA) was the first tokenized fund domiciled in and approved by the FSRA (31 October 2024), regulated as a fund unit under the FUNDS rulebook.
• Singapore: Tokenized fund units are CIS units under the SFA; the Franklin Templeton-DBS tokenized money market fund is MAS-authorised, with retail access from a US$20 minimum from Q1 2026.
• Hong Kong: Tokenized fund units in SFC-authorised investment products may be offered to retail investors under the November 2023 / April 2026 circulars, provided the underlying product is not complex; tokenised MMFs are the initial focus of the 24/7 retail secondary-trading framework.
• Japan: Tokenized fund units are ERTRs (Type I equivalent), requiring Type I FIBO registration. The Japan Security Token Offering Association (JSTOA) provides self-regulatory governance.

4. What Works and What Doesn't

4.1 What Works

Technology-neutral principles applied through clear regulatory guidance.

Singapore and Hong Kong demonstrate that technology-neutral securities law, combined with detailed tokenization-specific guidance, provides the optimal balance. Singapore's MAS Guide on the Tokenisation of Capital Markets Products (November 2025) covers the complete lifecycle and is directly usable by market participants. Hong Kong's SFC "see-through" approach (November 2023 circulars, updated April 2026) provides a single, coherent principle that scales across instrument types. Both jurisdictions have active institutional markets: Singapore's Project Guardian has over 40 participants including DBS, JPMorgan, HSBC, and Franklin Templeton; Hong Kong's HKSAR Government has issued three rounds of digital green bonds.

Dedicated DLT infrastructure legislation that integrates with existing securities law.

Switzerland's DLT Act and Germany's eWpG demonstrate that purpose-built legislation providing property law certainty (ownership, transfer, insolvency segregation) for tokenized assets accelerates institutional adoption. Germany produced two of the early EU DLT Pilot Regime infrastructures (21X AG, 360X AG). Switzerland's SIX Digital Exchange operates under FINMA stock-exchange and CSD licenses, integrating trading, settlement, and custody with production-grade atomic settlement. Abu Dhabi's ADGM adds a single-regulator common-law variant via its purpose-built Digital Securities Foundation (DSF) supporting atomic DvP.

Government-led tokenization programs creating market demonstration effects.

Jurisdictions where governments themselves issue or facilitate tokenized instruments have stronger market development. The HKSAR digital green bond program (three issuances, 2023--2025), Germany's KfW EUR 100 million blockchain bond, France's Caisse des Depots EUR 100 million digitally native note (November 2024, settled via wholesale CBDC), Canada's Project Samara CAD 100 million tokenized bond (March 2026), and Dubai's DLD real estate tokenization project all demonstrate that government participation provides institutional confidence, benchmarks, and infrastructure development.

Graduated licensing frameworks with proportionate capital requirements.

Bahrain's four-tier licensing structure (BHD 25,000 to BHD 300,000) and Liechtenstein's low registration fees (CHF 1,500 base, 3-month statutory processing) reduce barriers to entry for startups while maintaining regulatory oversight. The Cayman Islands and BVI add tax-neutral, filing-based fund and SPV routes (Cayman fund registration in days to weeks; BVI FSC service-standard within six months). Conversely, Japan's Type I FIBO requirement (JPY 50 million minimum capital) and the US broker-dealer/ATS regime create high barriers that concentrate market activity among established financial institutions.

4.2 What Doesn't Work

Multi-year gaps between policy announcement and enacted legislation.

South Korea announced its STO framework in February 2023, but enabling legislation was passed only in January 2026 with an effective date of January 2027 --- a near-four-year gap. During this period, no security tokens could be issued outside sandbox designations. Australia's token mapping consultation began in February 2023; its Corporations Amendment (Digital Assets Framework) Act 2026 received Royal Assent on 8 April 2026 but does not commence until 9 April 2027. These delays cost competitive positioning and drive issuers to jurisdictions with existing frameworks.

Classification uncertainty at the boundary without authoritative guidance.

The US Howey test, without binding SEC rules (the 2019 FinHub Framework is staff guidance, not a Commission rule), creates compliance costs and litigation risk. Multiple jurisdictions (Canada, Brazil) rely on adapted versions of the Howey test without having developed the depth of judicial precedent that exists in the US, creating further uncertainty. ESMA's nine classification guidelines (March 2025) represent a step toward resolving this for the EU, but they were published nearly two years after MiCA entered into force.

Regulatory fragmentation within a single country.

The UAE's multi-regime structure (VARA, ADGM, DIFC, federal CMA) and Canada's 13-jurisdiction provincial model create compliance complexity that increases costs for cross-zone or cross-province operations. Firms must determine which regulator applies before they can assess compliance requirements, adding a jurisdictional analysis layer absent in single-regulator jurisdictions such as Abu Dhabi (FSRA alone), Bahrain (CBB), Ireland (CBI), the Cayman Islands (CIMA), and the BVI (FSC).

DLT Pilot Regime thresholds too restrictive to achieve meaningful market development.

The EU DLT Pilot Regime produced six authorized operators since March 2023, with trading activity remaining modest. ESMA's June 2025 review identified thresholds as too restrictive and recommended increasing the aggregate market value threshold from EUR 6 billion to EUR 100 billion. The European Commission's Market Integration and Supervision Package (adopted 4 December 2025) proposes that increase and makes the regime permanent, also expanding eligible operators to include MiCA-authorized CASPs and extending the regime to all financial asset classes.

Failure to address the custody and settlement layer alongside classification.

Classification alone is insufficient. The ASX's abandoned CHESS DLT replacement project (November 2022, ~AUD 250 million write-down) illustrates that technical infrastructure must advance in parallel with legal frameworks. France's AMF identified in its March 2020 legal analysis that the CSDR, Finality Directive, and existing custody requirements obstruct full on-chain settlement --- the principal obstacle to security token development in the EU. The DLT Pilot Regime was explicitly designed to address this gap, but its slow uptake demonstrates that temporary exemptions are insufficient. Permanent infrastructure reform --- as ESMA recommended in June 2025 --- is required. By contrast, the Cayman Islands, BVI, Liechtenstein, Bahrain, and (largely) Ireland report no domestic on-chain atomic-settlement / CSD regime at all, deferring market infrastructure to onshore venues.

Insufficient attention to cross-border recognition of tokenized securities.

No bilateral or multilateral mutual recognition agreement for tokenized securities exists between any two of the 21 surveyed jurisdictions. The EU's single-market passporting framework is the closest equivalent --- shared by the EU, France, Germany, Ireland, Luxembourg, and (via EEA) Liechtenstein --- but it operates within a unified regulatory bloc. A Reg D security token issued in the United States cannot be freely traded in Singapore, the EU, Hong Kong, or Abu Dhabi (ADGM) without separate compliance with each jurisdiction's offering restrictions, prospectus requirements, and intermediary licensing rules. The IOSCO Policy Recommendations for Crypto and Digital Asset Markets (November 2023) advocate for greater cross-border cooperation, but implementation remains nascent.

5. Recommended Framework: Tiered Classification Model

Based on the evidence from 21 jurisdictions, this section proposes a tiered classification model for regulators designing or reforming their securities classification frameworks for tokenized RWAs. The model draws on demonstrated best practices and is calibrated to the specific characteristics of tokenized instruments.

Tier 1: Tokenized Financial Instruments (Full Securities Regulation)

Scope: Tokenized versions of instruments already classified as securities under the jurisdiction's existing law --- bonds, shares, debentures, fund units, collective investment scheme interests, derivatives.

Regulatory treatment: Identical to the non-tokenized counterpart. No separate "security token" category. Technology neutrality applies.

Precedent: This is the approach adopted by every surveyed jurisdiction. The SEC's January 2026 statement, MAS's November 2025 guide, the SFC's November 2023 circulars, and Abu Dhabi's FSMR s.58(2)(b) deeming power all confirm this principle.

Implementation requirement: Issue clear guidance (comparable to MAS's Guide on Tokenisation of CMPs or the SFC's circulars) confirming that tokenization does not alter regulatory classification and specifying how existing rules apply to the tokenization lifecycle (issuance, custody, secondary trading, redemption).

Custody and settlement: Adopt statutory insolvency segregation rules for tokenized securities held by custodians. Switzerland's Art. 242a DEBA (segregation from bankruptcy estate when assets are individually attributable to clients) and Germany's eWpG (electronic securities classified as movable property with bona fide acquisition rights) provide proven models. Ensure that DLT-based settlement has equivalent legal finality to traditional book-entry settlement.

Secondary trading infrastructure: License DLT-based trading venues under existing market operator frameworks, with targeted exemptions where DLT characteristics are incompatible with legacy requirements (following the EU DLT Pilot Regime model, but with the higher thresholds recommended by ESMA's June 2025 review). Luxembourg's Blockchain Law IV Control Agent role and Abu Dhabi's purpose-built DSF (atomic DvP via a separately licensed legal entity) offer flexible alternatives to the traditional Central Account Keeper model for post-trade supervision.

Tier 2: Novel Tokenized Instruments (Proportionate Regulation)

Scope: Tokenized fractional interests in non-financial assets (real estate, art, commodities, intellectual property, revenue streams) that do not precisely map to existing securities categories but involve pooled investment, third-party management, and expectation of financial return.

Regulatory treatment: Classified as securities (or the jurisdictional equivalent) with proportionate disclosure, investor protection, and licensing requirements. A dedicated prospectus template for tokenized fractional interests (similar to Brazil's CVM Resolution 88 framework for crowdfunding tokens) should be available, with calibrated offering limits and investor caps.

Thresholds (based on surveyed precedents):

Tier 3: Utility and Access Tokens (Conduct Regulation Only)

Scope: Tokens providing genuine access to a functional product or service, with no investment characteristics, expectation of financial return, or secondary market price appreciation incentive.

Regulatory treatment: Not classified as securities. Subject to consumer protection, AML/KYC, and advertising standards only. (The BVI illustrates the cleanest version: sole issuance of a non-investment token proceeds without a prospectus or FSC approval, while AML/CFT and beneficial-ownership obligations still attach.)

Critical safeguard: A "substance-over-form" override --- following Switzerland's January 2024 Federal Administrative Court precedent --- ensures that tokens labeled as "utility" but possessing investment characteristics are reclassified to Tier 2 or Tier 1. ESMA's March 2025 guidelines provide a detailed methodology for this override determination that can serve as a model for non-EU jurisdictions.

Monitoring requirement: Regulators should require periodic re-assessment of token classification when secondary market activity develops or when the token's functionality changes (e.g., a utility token acquiring staking yields or governance rights that create profit expectations). The SEC FinHub Framework acknowledges that "the analysis is not strictly inherent to the instrument and may change over time."

Cross-Cutting Requirements Across All Tiers

1. Technology neutrality: Classification must depend on economic substance, not the specific DLT protocol, blockchain type, or smart contract structure used.
2. Lifecycle coverage: Guidance must address issuance, primary distribution, secondary trading, custody and settlement, corporate actions, and redemption.
3. DeFi accommodation: Establish a framework for "permissioned DeFi" --- decentralized infrastructure with compliance-enforced smart contracts --- that satisfies securities regulation without requiring a centralized operator.
4. Insolvency segregation: Adopt statutory segregation rules for tokenized assets held by custodians (following Switzerland's Art. 242a DEBA or Germany's eWpG property classification).
5. Interoperability with international frameworks: Align classification criteria with IOSCO Policy Recommendations for Crypto and Digital Asset Markets (November 2023) and FSB Recommendations for the Regulation, Supervision and Oversight of Crypto-Asset Activities and Markets (July 2023).

6. Decision Matrix for Regulators

The following matrix assists regulators in selecting an appropriate classification approach based on their jurisdiction's characteristics.

Factor 1: Legal Tradition

Factor 2: Market Maturity

Factor 3: Regulatory Resources

Factor 4: Policy Objectives

Factor 5: Existing Financial Infrastructure

Implementation Sequencing

Based on observed patterns across the 21 surveyed jurisdictions, the following sequencing produces the best outcomes:

1. Phase 1 (Months 0-6): Issue classification guidance confirming that tokenized versions of existing securities are subject to existing law. This requires no legislative action and immediately provides legal certainty. Models: SEC January 2026 statement; MAS November 2025 guide; SFC November 2023 circulars; Abu Dhabi Digital Securities Guidance.

2. Phase 2 (Months 6-18): Establish a regulatory sandbox for novel tokenized instruments, with a fast-track application process and graduated compliance requirements. Models: Singapore MAS Sandbox; UK Digital Securities Sandbox; DFSA Tokenisation Regulatory Sandbox; ADGM RegLab; CBB FinTech Sandbox.

3. Phase 3 (Months 12-36): Enact legislation providing property law certainty for tokenized assets (ownership, transfer, insolvency segregation) and creating DLT-specific infrastructure categories (DLT trading facilities, crypto securities registrars, control agents). Models: Switzerland DLT Act; Germany eWpG; Luxembourg Blockchain Laws I-IV; Cayman tokenised-funds framework (2026).

4. Phase 4 (Months 24-48): Develop cross-border recognition frameworks through bilateral MoUs and multilateral standard-setting, aligned with IOSCO, FSB, and BIS recommendations. Engage in wholesale CBDC settlement experimentation for tokenized securities (models: Eurosystem DL3S experiments; Singapore Project Guardian / BLOOM; Hong Kong Project Ensemble; Australia Project Acacia; Brazil Drex).

Verification Notes

This guidance document mirrors the canonical per-jurisdiction facts in the RWA regulation fact matrix (21 jurisdictions) as of the 2026-06-04 refresh. The "X of N" aggregates are derived for N=21. Four jurisdictions ---

Cayman Islands, British Virgin Islands,

Ireland, and Abu Dhabi (ADGM) --- were integrated in this refresh across the classification-model buckets (Models B and F), the comparative table, every boundary-question prose bucket, and the recommended-framework and decision-matrix sections.

Verified Claims

Items Not Independently Verified Beyond the Fact Matrix

Last verified against the fact matrix: 4 June 2026