SEC Issues Guidance as Tokenized Securities Pilot Launches

Tokenization—creating digital tokens that represent assets on a decentralized ledger or blockchain—has drawn considerable focus within the financial industry across major economies worldwide globally. Analysts forecast that tokenized assets may be worth between $10 trillion and $16 trillion by 2030.

This growth is driven by the prospect of greater efficiency and accessibility in the financial system. Tokenization aims to provide a more direct, trustless, and dynamic way to transfer value.

However, blockchain technology is in discord with various established regulatory frameworks and legal constructs. The current financial, legal, and regulatory system relies on conventional custody of assets and a network of intermediaries to facilitate transactions and assign legal responsibility and accountability.

Regulatory Considerations

The U.S. Securities and Exchange Commission (SEC) has issued a Statement on Tokenized Securities, which provides clarity on the regulatory approach to tokenization. The Statement adopts a principle that emphasizes the substance of a security over its form, making it clear that the format in which a security is issued or recorded does not affect the application of federal securities laws.

The SEC’s approach aims to provide a conducive pathway for new technology to compete, while maintaining market integrity and supporting the principles of the capitalist system. The Statement highlights the importance of balancing technological developments with regulatory objectives and priorities.

Tokenization can be structured in different ways, including as a digital twin token (DTT) or a digital-native token (DNT). A DTT represents an asset that exists or was issued off-chain, while a DNT represents an asset issued on-chain.

Market Adoption and Legislative Activities

Market participants are working to leverage the potential benefits of tokenization while managing its risks. The SEC has granted no-action relief to certain companies, enabling them to launch pilot programs for securities tokenization.

For example, the Depository Trust Company (DTC) has launched a Pilot Tokenization Service Program, which enables participants to convert their securities entitlements into a DTT on preapproved blockchains. The program establishes two layers for recording transactions, with the primary layer functioning as the definitive record of ownership.

Legislative activities, such as the Digital Asset Market Clarity Act, seek to provide clarity on the regulatory framework for digital assets. However, the lack of clear legislation has prompted regulators to fill the gap, with the SEC issuing interpretive releases and proposed rules to regulate blockchain technology and tokenization.

The SEC’s proposed rules, such as Regulation Crypto Assets, propose to create a tailored offering regime for certain investment contracts involving crypto assets. The proposed rules also revisit the current regulatory framework to reflect the use of electronic communications and blockchain technology in connection with securities offerings and the transfer of shares.

On October 1, 2026, the SEC proposed new rules and amendments for the custody of crypto assets under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The proposed rules provide a tailored framework for advisers and regulated funds to self-custody crypto assets and maintain client or regulated fund crypto assets with a state trust company.

The SEC’s Chairman emphasized that only Congress can ensure that regulations in this space establish a durable framework for blockchain technology and decentralized ledgers. Legislative actions are necessary to provide a clear and stable regulatory environment for tokenization and digital assets.

The UCC 2022 Amendments, which modernize the Uniform Commercial Code to accommodate emerging technologies, including blockchain and distributed ledger technology, have been adopted by thirty-two jurisdictions. The amendments introduce a new class of electronic property, controllable electronic records, which covers a broad range of digital assets.

The manner in which these amendments are implemented will be instrumental in the proliferation of tokenization, as they provide pathways for emerging technologies to use the UCC infrastructure. The implementation of these amendments will also affect the commercial law implications of tokenization, particularly with regards to custody, intermediaries, and recordkeeping.

The development of on-chain vault applications, which aim to fulfill the core function of the custody rule promulgated under Section 206(4) of the Investment Advisers Act, will also be important in the adoption of tokenization. The SEC’s posture toward blockchain-based applications that satisfy the investor protection and prudential objectives of qualified custodians will significantly shape the competitive market.

On March 18, 2026, the SEC approved the Nasdaq Stock Market LLC proposed rule change to enable the trading of securities on the exchange in tokenized form. Similarly, on January 19, 2026, the New York Stock Exchange announced that it is developing a platform for trading and on-chain settlement of tokenized securities.

Commercial Law Implications and Legislative Activities

The UCC 2022 Amendments, which introduce a new class of electronic property, controllable electronic records, may play a key role in the proliferation of tokenization.