What Tokenization Is (and Isn't)

A tokenized security is an ordinary security, such as a share, bond, or fund interest, whose ownership record is kept wholly or partly on a blockchain. Because the format does not change the legal substance, tokenized securities are still securities and remain subject to the federal securities laws. What can change is who issued the token and what rights it actually gives the holder.

A new record-keeping format, not a new asset class

SEC staff define a tokenized security as a financial instrument listed in the definition of "security" 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 ^[2]. The Commission adopted essentially the same definition for what it calls a "digital security" in its March 2026 interpretation, noting that the term is commonly used interchangeably with "tokenized" security ^[3]. Tokenization itself is described as the process of creating a digital representation of a tangible or intangible asset using distributed ledger technology ^[2].

On July 9, 2025, Commissioner Hester Peirce summed up the legal point in a statement titled "Enchanting, but Not Magical": blockchain technology "does not have magical abilities to transform the nature of the underlying asset. Tokenized securities are still securities." ^[1] She added that market participants must consider and adhere to the federal securities laws when transacting in these instruments, and that the same legal requirements apply to on- and off-chain versions ^[1]. The Commission's 2026 interpretation states the same principle: a security is a security regardless of whether it is issued or represented offchain or onchain ^[3].

Who tokenizes the security matters

SEC staff group tokenized securities into two broad categories: securities tokenized by or on behalf of their issuer, and securities tokenized by third parties unaffiliated with the issuer ^[2]. The Investor Advisory Committee adds a second dimension: a token can be "native," issued directly on a blockchain, or "wrapped," meaning the underlying security sits with a custodian and the token represents an interest in that custodied position ^[4].

• Issuer-sponsored: the issuer or its agent integrates the ledger into the master securityholder file, so a transfer of the token is a transfer of the security on the official record ^[2].
• Issuer-sponsored, offchain record: the issuer keeps the official record offchain and uses the token only to signal transfers, which the issuer or its agent then records offchain ^[2].
• Third-party custodial: a third party holds the underlying security and issues a token evidencing the holder's ownership interest, such as a tokenized security entitlement ^[2].
• Third-party synthetic: a third party issues its own security, such as a linked security or security-based swap, that gives economic exposure to another company's security without conveying rights from that company ^[2].

These differences carry real consequences. Staff caution that a third-party token may or may not confer any rights as a holder of the underlying security, and that holders may be exposed to risks of the third party, such as its bankruptcy ^[2]. Commissioner Peirce likewise noted that purchasers of third-party tokens may face counterparty risks, and that a token that does not give legal and beneficial ownership of the underlying security could be a security-based swap that cannot be traded off exchange by retail persons ^[1]. The Investor Advisory Committee gave the example that an owner of a wrapped token issued by a third party may lack the voting or bankruptcy rights of an owner of a native token issued on behalf of the company ^[4].

Onchain ownership records and the transfer agent

For a company's own shares, the authoritative list of registered holders is the master securityholder file, kept by the issuer or its agent, often a transfer agent ^[2]. In the issuer-sponsored model, staff explain that the only difference from a traditional security is that the issuer or its agent maintains that file on one or more crypto networks, which function as onchain database records, alongside offchain records that link wallet addresses to holder names and addresses ^[2]. Staff also note that one class of securities can exist in several formats and that holders may be allowed to convert between them ^[2].

Transfer agent regulation is catching up. On September 4, 2026, the SEC published proposed Transfer Agent Rules in the Federal Register, with comments due November 3, 2026 ^[5]. Among other changes, the proposal would require registered transfer agents to report on Form TA-2 the number of issues for which distributed ledger technology was used to maintain the master securityholder file, and the number of issues serviced by tokenization model ^[5]. The proposing release observes that firms are developing blockchain-based recordkeeping and tokenized fund administration models that would require transfer agents to keep issuer and securityholder records on distributed ledgers ^[5]. These are proposals, not final rules.

Why issuers and investors care

Commissioner Peirce observed that tokenization may facilitate capital formation and enhance investors' ability to use their assets as collateral ^[1]. The Investor Advisory Committee pointed to other possible benefits: faster settlement, better visibility for public companies into who their shareholders are (shares today are often held in "street name" through brokers), and fewer intermediaries for corporate actions such as dividends and proxy voting ^[4]. The same committee stressed the risks, including the need for clear disclosure of exactly which ownership rights a token carries ^[4].

SEC educational materials summarize the practical warning: there are many tokenization models, and the rights of a token holder may be materially different from the rights of a holder of the underlying security, including economic and voting rights ^[6]. For anyone evaluating a tokenized instrument, the first diligence questions are therefore who issued the token, what legal claim it represents, and where the official ownership record lives.

Key terms

Tokenized (digital) security

A financial instrument within the definition of "security" that is formatted as or represented by a crypto asset, with its ownership record kept wholly or partly on a crypto network.

Tokenization

Creating a digital representation of a tangible or intangible asset using distributed ledger technology.

Master securityholder file

The official record of a security's registered owners, maintained by the issuer or its transfer agent; it can be kept offchain, onchain, or both.

Transfer agent

An agent of the issuer that keeps its securityholder records and processes transfers, issuances, and related services.

Security entitlement

An indirect interest in a security held through an intermediary such as a broker or custodian; it can itself be tokenized.

Native vs. wrapped token

A native token is issued directly on a blockchain; a wrapped token represents an interest in an underlying security held by a custodian.

Synthetic tokenized security

A third party's own security, such as a linked security or security-based swap, that tracks another company's security without conveying rights from that company.

Check your understanding

Sources

1. [1]U.S. Securities and Exchange Commission (Commissioner Hester M. Peirce), “Enchanting, but Not Magical: A Statement on the Tokenization of Securities,” July 9, 2025.
2. [2]U.S. Securities and Exchange Commission (Divisions of Corporation Finance, Investment Management, and Trading and Markets), “Statement on Tokenized Securities,” January 28, 2026.
3. [3]U.S. Securities and Exchange Commission and Commodity Futures Trading Commission, “Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets (Release No. 33-11412),” March 17, 2026.
4. [4]SEC Investor Advisory Committee, “Recommendation of the Investor Advisory Committee Regarding the Tokenization of Equity Securities,” March 12, 2026.
5. [5]Federal Register (U.S. Securities and Exchange Commission), “Transfer Agent Rules (Proposed Rule, Release No. 34-106246),” September 4, 2026.
6. [6]U.S. Securities and Exchange Commission, “Crypto Assets and the Federal Securities Laws,” May 15, 2026.

Educational content only — not legal, tax, or investment advice, or an offer to sell or a solicitation of an offer to buy any security. Rules and data are described as of November 2026 and may change. Securities offered through Umergence LLC, Member FINRA/SIPC.