Tokenization of Securities: Legal Guide 2025

Key Takeaways

• Tokenization of securities converts regulated financial assets into blockchain-recorded digital tokens that remain subject to applicable securities laws in every jurisdiction where they are issued or traded
• The process is legal in the United States, the European Union, Singapore, Switzerland, and other major jurisdictions when conducted under applicable regulatory frameworks
• Institutional adoption has accelerated materially, with BlackRock, JPMorgan, and the European Investment Bank all completing live tokenization projects at operational scale
• Key advantages include fractional ownership potential, faster settlement, and programmable compliance enforcement; secondary market liquidity for most tokenized securities remains nascent
• Most US offerings are restricted to accredited investors under Regulation D; Regulation A+ provides a pathway for broader retail participation
• According to BCG's 2022 analysis, tokenized illiquid assets could reach $16 trillion by 2030; current on-chain tokenized real-world assets stand at approximately $300 to $400 billion

Table of Contents

1. What Is Tokenization of Securities?
2. How Tokenization of Securities Works: The End-to-End Process
3. Benefits of Tokenization of Securities
4. Risks and Challenges of Tokenized Securities
5. Regulatory Framework: How Tokenized Securities Are Governed
6. Security Tokens vs. Cryptocurrencies, Utility Tokens, and NFTs
7. Tokenized Securities vs. Traditional Securities
8. Real-World Examples: Institutional Tokenization Projects in 2024–2025
9. What Types of Assets Can Be Tokenized?
10. How to Invest in Tokenized Securities: Platforms and Investor Requirements
11. Market Size, Growth, and the Future of Tokenized Securities
12. Frequently Asked Questions About Tokenization of Securities
13. Key Takeaways: What Tokenization of Securities Means for the Market

What Is Tokenization of Securities?

Definition: Tokenization of securities is the process of converting ownership rights in a regulated financial asset (such as equity, debt, real estate funds, or private equity) into programmable digital tokens recorded on a blockchain or distributed ledger. Each token represents a fractional or whole ownership stake in the underlying asset, with compliance rules, transfer restrictions, and corporate actions enforced automatically by smart contracts. Unlike cryptocurrencies, tokenized securities are subject to applicable securities laws and must be issued and traded through regulated channels.

Think of a tokenized security as a digital certificate of ownership that lives on a distributed ledger rather than in a paper register or a central depository. The ownership record is always current, always auditable by authorized parties, and can be programmed to enforce legal requirements automatically, without requiring a clearinghouse to process each transfer.

Tokenization of securities sits within the broader category of real-world asset (RWA) tokenization, which encompasses any physical or financial asset represented on a distributed ledger. Not all RWA tokenization produces securities: tokenizing a commodity or a piece of art may or may not create a security depending on how the structure is designed. Tokenization of securities is the regulated, compliance-intensive sub-category that concerns market participants most directly.

A security token (in the financial markets context, distinct from the authentication devices used in cybersecurity) is the digital artifact that results from this process. It represents ownership rights in a regulated financial instrument and is subject to applicable securities laws wherever it is offered or traded. That regulatory status is what separates a security token from a utility token (which grants access to a product or service), from a cryptocurrency (which is a native digital asset without an underlying regulated instrument), and from an NFT (a non-fungible digital record without inherent securities law obligations). These distinctions matter and are the source of significant confusion, so a dedicated comparison section addresses them in detail below.

The underlying infrastructure for tokenization is distributed ledger technology (DLT), which refers to any digital system for recording and synchronizing data across multiple locations without a central administrator. Blockchain is one type of DLT; all blockchains are DLTs, but not all DLTs are blockchains. Institutional regulators including the Bank for International Settlements, the European Central Bank, and the Monetary Authority of Singapore typically refer to "DLT-based" systems rather than blockchains in their formal guidance, because enterprise tokenization platforms often use permissioned DLT architectures that differ from public blockchain systems.

How Tokenization of Securities Works: The End-to-End Process

The tokenization of securities lifecycle runs from initial asset structuring through ongoing secondary market trading and corporate actions, typically across eight sequential phases. Each phase involves specific legal, technical, and operational requirements.

1. Asset identification and legal structuring. The issuer identifies the financial asset to be tokenized and works with securities counsel to determine the appropriate legal structure. For a private equity stake, this typically means establishing a special purpose vehicle (SPV) or limited partnership that holds the underlying asset. The legal structure determines what rights token holders receive and how those rights are enforced under applicable law. Engaging qualified legal counsel at this stage is essential before any technical work begins.

2. Regulatory pathway selection. The issuer determines which regulatory exemption or registration pathway applies. In the United States, most security token offerings are conducted under Regulation D (private placement to accredited investors), Regulation S (offshore offerings to non-US investors), or Regulation A+ (up to $75 million in securities sold to the general public). The chosen pathway determines investor eligibility, disclosure requirements, and filing obligations with the SEC.

3. Blockchain infrastructure selection. The issuer selects whether to deploy on a public blockchain (such as the Ethereum blockchain or the Stellar network) or a permissioned enterprise blockchain (such as Hyperledger Fabric, R3 Corda, or ConsenSys Quorum). This choice affects transaction privacy, throughput, governance, and the available institutional services. The public vs. permissioned blockchain comparison later in this section covers this decision in detail.

4. Token standard selection and smart contract programming. The development team selects a token standard that embeds the required compliance controls. A smart contract (self-executing code deployed on a blockchain that automatically executes predefined rules when specified conditions are met) is then programmed to enforce KYC/AML requirements, transfer restrictions, lock-up periods, and corporate action distributions. KYC (Know Your Customer) verification requires platforms to confirm investor identity before allowing token transfers; AML (Anti-Money Laundering) monitoring detects and reports suspicious transaction patterns. In most compliant implementations, the smart contract maintains a whitelist of verified investor addresses, so any transfer to a non-whitelisted address automatically reverts without requiring manual intervention. A smart contract on a tokenized bond, for example, automatically distributes coupon payments to all token holders on the scheduled payment date, eliminating the need for a separate paying agent.

5. Investor onboarding and KYC/AML verification. Investors complete identity verification through the issuer's platform or a qualified transfer agent before receiving tokens. This process mirrors the onboarding for any regulated securities offering and must comply with applicable AML program requirements under the Bank Secrecy Act in the US and equivalent frameworks internationally.

6. Primary issuance via Security Token Offering. The security token offering (STO) is the regulated fundraising event through which tokens are distributed to qualified investors, analogous to an IPO for traditional equity or a bond issuance for debt. An STO differs materially from an ICO (Initial Coin Offering): an STO is subject to securities regulation and requires either registration with or exemption from securities regulators, while ICOs (associated with the 2017–2018 period) typically involved unregistered offerings of utility tokens and carried substantially higher legal and investor protection risk.

7. Secondary market trading via regulated venues. Once issued, security tokens can be traded on an alternative trading system (ATS), a non-exchange trading venue registered with the SEC under Regulation ATS that matches buyers and sellers of securities. Most security tokens in the United States trade on ATS platforms rather than national securities exchanges, because ATS registration requires less extensive regulatory infrastructure than full exchange registration. ATS platforms are categorically different from cryptocurrency exchanges: platforms like Coinbase and Binance are not ATS-registered and generally cannot legally facilitate trading of regulated security tokens in the US.

8. Ongoing corporate actions and lifecycle management. After issuance, smart contracts automate dividend or interest distributions, voting rights, compliance reporting, and corporate action processing. Token holders receive distributions directly to their verified wallet addresses on the scheduled date, without requiring a transfer agent to process each payment manually. This automation represents one of the most concrete operational cost reductions that tokenization can deliver in practice.

Token Standards Used in Security Token Issuance

Not all token standards are legally sufficient for security token issuance; the standard chosen determines whether compliance rules are embedded directly in the token's code or require external enforcement mechanisms.

Polymath Network developed the ERC-1400/ST-20 standard and has since built Polymesh, a purpose-built permissioned blockchain for security tokens with on-chain identity, compliance, and governance modules. The Ethereum-based ERC-1400 tools and the Polymesh blockchain serve different technical architectures and should not be conflated.

Public Blockchain vs. Permissioned Blockchain for Security Tokens

Security token issuers choose between two fundamentally different blockchain architectures: public blockchains, where any participant can join the network, and permissioned blockchains, where access is controlled by a central administrator.

Major financial institutions often prefer permissioned blockchains because they offer transaction privacy, governance control, regulatory reporting compatibility, and higher throughput. JPMorgan's Onyx platform and Goldman Sachs's GS DAP both operate on permissioned architectures for these reasons. Conversely, BlackRock's decision to deploy its BUIDL fund on public Ethereum demonstrated that institutional-grade tokenization is also achievable on public infrastructure when the use case supports it.

Benefits of Tokenization of Securities

Tokenization of securities offers institutional issuers and qualified investors several operational and structural advantages over traditional capital markets infrastructure. The most significant is the potential to create secondary liquidity for assets that have historically had none. These benefits are mechanistic: they describe what the technology enables in principle, subject to the regulatory structure, platform maturity, and secondary market development of any specific offering.

• Enhanced liquidity for illiquid assets. Private equity, real estate, and venture debt have historically required investors to lock up capital for years with no ability to exit before a fund wind-down or asset sale. Tokenization can, in principle, create a secondary market for these positions by enabling token transfers on ATS platforms. In practice, secondary market liquidity for most tokenized securities remains nascent as of 2024–2025: trading volumes on ATS platforms are thin compared to public markets, and bid-ask spreads can be wide. Institutions evaluating tokenization for liquidity should calibrate expectations against current secondary market depth, not projected potential.

• Fractional ownership and democratized access. Tokenization enables a single asset to be divided into thousands or millions of smaller units, each representing a proportional ownership stake. A commercial real estate asset valued at $10 million can, in principle, be divided into 10,000 tokens of $1,000 each, enabling investors who could not meet a traditional $500,000 minimum to participate. REITs provide a precedent for fractional real estate ownership at the portfolio level; tokenization applies this principle at the individual asset level with greater flexibility. The regulatory constraint is real: in the United States, most security token offerings under Regulation D remain restricted to accredited investors even when technically divisible into small units.

• Settlement efficiency. Traditional securities markets in the United States settle on a T+2 basis, meaning a trade executed today settles two business days later. Tokenized securities can settle in near-real time through atomic settlement on a distributed ledger, where a trade and its payment are exchanged simultaneously, eliminating settlement lag and the associated counterparty risk. In practice, full T+0 atomic settlement requires both the securities token and the payment instrument (such as a stablecoin or central bank digital currency) to exist on the same ledger, which is not yet universal. The settlement efficiency benefit is real and measurable where implemented, but not automatic in every tokenization structure.

• Programmable compliance and automated corporate actions. Smart contracts automate dividend distributions, interest payments, voting rights, lock-up period enforcement, and regulatory reporting without manual back-office processing. This reduces operational costs for issuers and eliminates several categories of processing errors and delays. The automation benefit accrues particularly for issuers managing large numbers of token holders across multiple jurisdictions.

• Transparency and auditability. Ownership records on a distributed ledger are immutable and visible in real time to authorized parties, providing a single authoritative record without requiring reconciliation between multiple custodian and transfer agent databases. This reduces reconciliation costs and audit complexity for institutional asset managers.

• Global investor access. Subject to applicable securities laws in each relevant jurisdiction, tokenized securities can be distributed to investors globally through a single issuance infrastructure, without requiring separate registrations and intermediary networks for each country. Regulation S provides an established exemption for US issuers selling to non-US investors, and many STOs combine Reg D (US accredited investors) with Reg S (international investors) in a single offering.

For a balanced view of where these advantages face structural limitations, see the risks and challenges of tokenized securities section.

Risks and Challenges of Tokenized Securities

Tokenized securities carry a distinct risk profile that includes both the risks inherent in regulated securities markets and additional risks specific to blockchain-based infrastructure and nascent secondary markets. Evaluating tokenization honestly requires treating these risks with the same rigor applied to the benefits.

• Regulatory risk. Regulatory frameworks governing tokenized securities continue to evolve. An offering structured under a current exemption may face changed requirements if regulators issue new guidance, if enforcement priorities shift, or if global regulatory divergence creates compliance complexity for cross-border issuances. SEC enforcement actions in the broader digital asset sector create legal overhang for the adjacent security token market, even when those actions target genuinely unregistered offerings rather than compliant STOs. Issuers and investors should assess regulatory risk as an ongoing operational consideration, not a one-time check.

• Nascent secondary market liquidity. Despite the theoretical liquidity promise, secondary market trading volumes for most tokenized securities remain well below those of comparable listed instruments. ATS platforms for security tokens operate with significantly smaller investor bases than traditional exchanges, and many tokenized offerings have seen minimal secondary market activity after initial issuance. Investors should treat liquidity as a potential long-term benefit, not a guaranteed feature of any specific offering.

• Smart contract technical risk. Smart contracts are code, and code can contain bugs or vulnerabilities that bad actors can exploit. A smart contract exploit on a tokenized security could result in unauthorized token transfers, misrouted distributions, or loss of access to the underlying asset record. This risk is distinct from the operational risks of traditional securities infrastructure and requires specific technical due diligence on contract audits, upgrade mechanisms, and private key management practices.

• Custody and operational risk. Integration of tokenized securities with traditional custodian infrastructure (including DTCC, Euroclear, and major prime brokers) remains partially unresolved. Many institutional investors are required by mandate or regulation to hold assets with qualified custodians; the number of custodians with institutional-grade digital asset custody infrastructure specifically designed for security tokens remains limited, though it is growing.

• Investor access barriers. Most US security token offerings are restricted to accredited investors under Regulation D, creating a significant access barrier for retail participants. This limitation directly affects the size of the potential investor base and the secondary market depth that an issuer can realistically anticipate.

• Cross-chain interoperability limitations. A security token issued on the Ethereum blockchain cannot be directly transferred to an investor on a Stellar-based platform or traded on a Polymesh-based ATS without bridge infrastructure. Each blockchain maintains its own ownership record, and tokens from one chain are not natively fungible with tokens on another. Cross-chain bridges introduce additional technical risk (bridge exploits have caused significant losses in other blockchain contexts) and potential regulatory complexity around transfer attribution. Institutional-grade interoperability initiatives are underway, including SWIFT's blockchain interoperability work and Project Agora at the Bank for International Settlements, but cross-chain interoperability for security tokens remains an open technical and regulatory challenge.

• Platform and counterparty risk. Investors in tokenized securities have exposure to the continued operation of the ATS platform and transfer agent managing their holdings. Platform insolvency, loss of regulatory registration, or operational failure could disrupt access to the secondary market, even if the underlying asset and smart contract remain intact.

Regulatory Framework: How Tokenized Securities Are Governed

Tokenized securities are legal when issued and traded in compliance with applicable securities laws, in the United States, the European Union, Singapore, Switzerland, and a growing number of other jurisdictions. What varies is the specific framework that applies and the compliance steps required in each jurisdiction.

US Regulatory Framework: SEC, the Howey Test, and Registration Exemptions

In the United States, the Securities and Exchange Commission (SEC) treats most security tokens as securities subject to federal securities law, applying the existing regulatory framework under the Securities Act of 1933 and the Securities Exchange Act of 1934 rather than creating a new category for digital assets. No specific security token legislation exists in the US; existing securities law applies.

The foundational legal test for whether a token constitutes a security is the Howey Test, established by the US Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 293 (1946). The SEC's Framework for Investment Contract Analysis of Digital Assets (April 2019) provides the authoritative guide for applying this test to digital tokens. A transaction constitutes an investment contract, and therefore a security, when it involves all four of the following:

1. An investment of money
2. In a common enterprise
3. With an expectation of profits
4. Derived from the efforts of others

Most security tokens satisfy all four prongs: investors contribute capital to an issuer's project expecting financial returns from the issuer's ongoing management of the underlying asset. This analysis is fact-specific and jurisdiction-dependent; the same token structure could receive different treatment in different regulatory contexts. These conclusions are educational, not legal determinations about any specific instrument.

The three primary SEC exemptions under which security token offerings are conducted in the United States are:

These are exemptions from SEC registration requirements, not exemptions from securities law. Anti-fraud provisions, investor protection requirements, and all other applicable securities law obligations remain in full force under each exemption.

Secondary trading of security tokens in the US must occur on a venue registered with the SEC. ATS operators must also register as broker-dealers with FINRA (the Financial Industry Regulatory Authority), which provides additional regulatory oversight of their operations.

EU and Global Regulatory Frameworks: MiFID II, MiCA, and Beyond

Outside the United States, three regulatory frameworks are most relevant for institutional issuers and investors: the European Union's Markets in Financial Instruments Directive II (MiFID II) and DLT Pilot Regime, Singapore's Securities and Futures Act administered by MAS, and Switzerland's distributed ledger technology legislation under FINMA.

A common and legally significant misconception is that EU tokenized securities are regulated by MiCA (the Markets in Crypto-Assets Regulation, fully applicable from December 2024). This is incorrect for most tokenized securities. Tokenized equities, bonds, and fund interests that qualify as financial instruments under MiFID II are regulated by MiFID II, not by MiCA. The MiCA regulation primarily governs crypto-assets that are not MiFID II financial instruments (such as asset-referenced tokens and e-money tokens). For practitioners structuring tokenized securities in the EU, MiFID II prospectus requirements and trading venue rules are the operative framework.

The EU has also created a dedicated regulatory pathway for blockchain-based securities settlement. The EU DLT Pilot Regime (Regulation 2022/858, operational since 23 March 2023) permits regulated financial market infrastructure, including regulated markets, multilateral trading facilities, and securities settlement systems, to operate on a DLT basis under temporary exemptions from specific provisions of MiFID II, CSDR, and EMIR. This regime enables live experimentation with DLT-based settlement of tokenized securities within a supervised regulatory framework.

Regulatory requirements vary materially across these jurisdictions, and structures compliant in one jurisdiction may require modification for another. Issuers conducting cross-border offerings should engage qualified securities counsel in each relevant jurisdiction before proceeding.

Security Tokens vs. Cryptocurrencies, Utility Tokens, and NFTs

A security token, a cryptocurrency, a utility token, and an NFT are four categorically distinct digital assets. They differ in legal classification, regulatory treatment, investor rights, and the nature of the underlying asset they represent.

The most consequential distinction for institutional investors is between security tokens and cryptocurrencies. Security tokens carry legal ownership of regulated assets and are subject to investor protection frameworks; cryptocurrencies are speculative instruments whose value is not tied to regulated asset ownership. Conflating these two categories, which is common in general media coverage, leads to misunderstanding of both the regulatory obligations and the investment risk profile.

A Security Token Offering (STO) is the regulated issuance event for security tokens. An STO under Regulation D has considerably lower compliance burden than a traditional IPO (which requires full SEC registration, underwriting, and exchange listing), but it also reaches a smaller investor base (accredited investors only, no public market listing) and operates with substantially less secondary market depth. STOs and ICOs are also categorically different: ICOs in the 2017–2018 era typically involved unregistered utility token sales that the SEC subsequently treated as unregistered securities offerings in many enforcement actions.

Tokenized Securities vs. Traditional Securities

For institutional finance professionals evaluating whether tokenization adds meaningful value over existing capital markets infrastructure, a direct comparison across operational dimensions is essential.

Traditional securities benefit from deep liquidity, established custodian infrastructure, and decades of institutional familiarity. Tokenized securities offer operational efficiencies that are real but currently constrained by limited secondary market depth, fewer qualified custodians, and an evolving regulatory framework. The two approaches are more likely to coexist and converge than for one to replace the other in the near term.

Real-World Examples: Institutional Tokenization Projects in 2024–2025

Institutional adoption of tokenized securities has accelerated materially since 2021, with asset managers, investment banks, and sovereign-equivalent issuers all completing live tokenization projects at operational scale. The following case studies provide verifiable evidence of what has actually been built.

Tokenized Fund Projects

BlackRock USD Institutional Digital Liquidity Fund (BUIDL). BlackRock launched the BUIDL fund in March 2024 on the Ethereum blockchain, with Securitize serving as SEC-registered transfer agent. The fund holds US Treasury bills, cash, and repo agreements, and distributes daily accrued income to token holders through smart contract automation. The minimum investment is $5 million, restricting participation to accredited institutional investors. BUIDL reached $500 million in assets under management within weeks of launch. The significance extends beyond the AUM figure: the world's largest asset manager chose public Ethereum as the deployment chain for a regulated fund product, providing a landmark institutional signal for the tokenization sector. BUIDL also pioneered integration with DeFi-adjacent protocols; Ondo Finance uses BUIDL as a yield-bearing backing asset for on-chain products, illustrating the emerging TradFi-DeFi bridge. Current market tracking data for the BUIDL fund is available through the BlackRock USD Institutional Digital Liquidity Fund market page.

Franklin Templeton OnChain US Government Money Fund (BENJI). Franklin Templeton launched the BENJI fund in 2021, initially on the Stellar blockchain and subsequently also on Polygon. It was the first US-registered mutual fund to use a public blockchain for transaction processing and share ownership recording. The fund holds US government securities and operates as a registered investment company under the Investment Company Act of 1940, demonstrating that tokenization is compatible with the most strictly regulated fund structure in the US market.

KKR Health Care Strategic Growth Fund II (partial tokenization). KKR tokenized a portion of its Health Care Strategic Growth Fund II in 2022 via Securitize on the Avalanche blockchain, making a share class of a major private equity fund accessible to qualified investors through Securitize's ATS. Hamilton Lane has similarly tokenized fund interests through Securitize, broadening accredited investor access to institutional private credit strategies. These projects demonstrated that institutional alternative asset managers can use tokenization to open private equity fund interests to a broader pool of qualified investors while maintaining the fund's existing legal structure.

Tokenized Debt Projects

European Investment Bank Digital Bond. The EIB issued its first digital bond on the Ethereum blockchain in April 2021: a EUR 100 million, two-year bond with Goldman Sachs, Santander, and Société Générale as joint lead managers. The bond was issued under Luxembourg and French law with existing legal frameworks recognizing the blockchain record as authoritative. In November 2023, the EIB issued a further digital bond on Goldman Sachs's GS DAP permissioned blockchain platform, demonstrating that institutional bond issuers are comfortable with both public and permissioned blockchain infrastructure. The full announcement is available at the EIB first digital bond press release.

World Bank Bond-i. The World Bank (International Bank for Reconstruction and Development) issued bond-i in August 2018 on a blockchain platform developed by the Commonwealth Bank of Australia, raising A$110 million in a two-year note. The World Bank bond-i was the first bond to be created, allocated, transferred, and managed through its lifecycle using blockchain technology, establishing that sovereign-equivalent issuers could conduct operationally sound bond issuances using distributed ledger infrastructure.

JPMorgan Onyx Digital Assets. JPMorgan's Onyx platform uses ConsenSys Quorum (a permissioned Ethereum fork) to tokenize collateral for intraday repo transactions, enabling near-instantaneous settlement of institutional collateral movements that traditionally required hours of back-office processing. JPMorgan also participated in MAS Project Guardian in Singapore, exploring tokenized bond trading across institutional participants on a permissioned blockchain. JPMorgan's Onyx Digital Assets platform is distinct from JPM Coin, which is a separate digital payment product for institutional settlements.

What Types of Assets Can Be Tokenized?

Virtually any financial asset that can be legally owned can, in principle, be represented as a security token, though the regulatory requirements and practical infrastructure vary considerably across asset classes. For a broader overview of tokenization across asset categories, see this guide to tokenization of digital assets.

• Equities and private company shares. Pre-IPO equity, LP interests in venture funds, and shares in private operating companies are among the most active targets for tokenization. Platforms including Securitize and Polymath enable issuers to create and distribute tokenized equity to accredited investors under Regulation D, with on-chain cap table management replacing spreadsheet-based records.

• Corporate and government bonds. Tokenized bonds are one of the most institutionally validated categories, with live issuances from the European Investment Bank, the World Bank, HSBC (tokenized on the Orion blockchain), and Goldman Sachs (GS DAP platform). Native digital bond issuances, where the bond is created directly on-chain rather than wrapping an existing instrument, represent the most operationally significant form of this asset class.

• Real estate and REITs. Tokenized real estate investment vehicles typically structure individual property ownership through LLC membership interests or limited partnership interests, which constitute securities subject to SEC regulation. Platforms including RealT (US residential real estate tokens on Ethereum), Lofty (fractionalized rental property), and RedSwan CRE (commercial real estate) enable fractional ownership of specific properties. Direct property tokenization (token represents ownership in a specific property via an LLC) differs structurally from tokenized REIT structures (token represents a share in a fund holding multiple properties), though both are typically securities.

• Private equity and venture capital fund interests. Tokenization of PE fund interests, as demonstrated by KKR's 2022 project via Securitize, can reduce the operational cost of transferring LP positions and potentially enable secondary market liquidity for positions that have historically been illiquid for the life of a fund.

• Commodities. Precious metals tokenization is operational at institutional scale: HSBC tokenized gold using its Orion blockchain platform, enabling institutional investors to hold gold exposure in token form with fractional granularity. Commodity tokenization raises distinct regulatory questions about whether the structure constitutes a security, and classification depends on how the token is structured and marketed.

• Money market funds and cash equivalents. The fastest-growing tokenization category in 2024, driven by BlackRock BUIDL and Franklin Templeton BENJI. Tokenized money market funds allow on-chain participants to hold yield-bearing cash equivalents that can serve as collateral or payment instruments in DLT-based settlement systems.

• Infrastructure assets and alternatives. Carbon credits, infrastructure project financing, and royalty streams from intellectual property are earlier-stage tokenization targets. Where these instruments involve pooling investor capital with profit expectations, they typically constitute securities subject to applicable registration or exemption requirements.

How to Invest in Tokenized Securities: Platforms and Investor Requirements

Accessing tokenized securities requires meeting investor qualification requirements, selecting a regulated platform, and completing a KYC/AML onboarding process before any investment can be made. The steps below describe the general process for US-based investors; requirements differ across international jurisdictions.

Investor Qualification Requirements for Tokenized Securities

Most tokenized security offerings in the United States are currently restricted to accredited investors, a category defined under SEC Rule 501 of Regulation D. An accredited investor meets at least one of the following criteria:

• Net worth exceeding $1 million, individually or jointly with a spouse, excluding the value of a primary residence
• Individual income exceeding $200,000 (or joint income with a spouse exceeding $300,000) in each of the two most recent calendar years, with a reasonable expectation of the same in the current year
• Holders of certain professional licenses, including the Series 7, Series 65, or Series 82 securities licenses

Most US security token offerings use Regulation D Rule 506(c), which requires issuers to take reasonable steps to verify accredited investor status before accepting subscriptions. Under Rule 506(b), up to 35 sophisticated but non-accredited investors may participate, but the issuer cannot engage in general solicitation or advertising.

Regulation A+ (Tier 2) offerings allow up to $75 million in securities to be sold to both accredited and non-accredited retail investors, with investment limits applying to non-accredited participants. Reg A+ is available to retail investors in a way that Reg D is not, though the offering process is more complex and costly for issuers.

Outside the United States, platforms including Archax (FCA-regulated, UK) and ADDX (MAS-regulated, Singapore) operate under different investor eligibility frameworks that may permit broader participation depending on local regulatory requirements.

After determining eligibility, investors complete KYC/AML onboarding, fund their platform account, and select from available offerings. Secondary market liquidity varies significantly across individual offerings and platforms. For a directory of regulated platforms, see the leading security token trading platforms below.

Leading Security Token Platforms

Regulated platforms where qualified investors may access tokenized securities fall into two categories: issuance platforms, which help issuers create and distribute security tokens, and trading platforms, which operate as SEC-registered alternative trading systems (ATS) for secondary market transactions.

Ondo Finance operates as a DeFi-native protocol rather than a registered ATS, which means it carries a different and generally higher risk profile than licensed platforms. Investors evaluating DeFi-adjacent tokenization products should assess smart contract risk, absence of investor protection frameworks, and regulatory status carefully alongside the regulated ATS options above.

No single platform is endorsed here. Investors should evaluate each platform against their own qualification status, the specific assets available, the platform's regulatory registration, custody arrangements, and secondary market liquidity depth.

Market Size, Growth, and the Future of Tokenized Securities

Market Projections (Sourced)

The tokenized real-world asset market stood at approximately $300 to $400 billion in on-chain assets as of 2024, according to DeFi Llama RWA tracking data. Multiple major consulting firms project this figure will grow significantly by 2030. According to BCG's 2022 analysis (co-authored with ADDX), global tokenized illiquid assets could reach $16 trillion by 2030. Roland Berger projects $10.9 trillion in tokenized assets by 2030. McKinsey's conservative estimate sits at $2 trillion. The wide range across these projections reflects materially different assumptions about regulatory catalyst timing, institutional adoption velocity, and scope definition, not disagreement about the directional trend.

The fastest-growing categories in 2024 were tokenized government bonds and money market funds, driven by institutional demand for yield-bearing on-chain instruments that can serve as collateral in DLT-based settlement systems. BlackRock and Franklin Templeton have both launched tokenized fund products that attracted multi-hundred-million-dollar AUM within their first year, providing credible demand validation beyond consultant projections.

Several near-term catalysts could accelerate adoption. Regulatory maturation, including the EU DLT Pilot Regime expanding its scope, greater SEC clarity on digital asset classifications, and growing jurisdictional convergence, reduces the compliance uncertainty that currently constrains issuer participation. Infrastructure investments by SWIFT (which has piloted blockchain interoperability for cross-border tokenized asset transactions) and DTCC (which is advancing digital settlement infrastructure) address the custodian and settlement requirements that institutional investors need before committing significant AUM.

Decentralized finance (DeFi) refers to blockchain-based financial protocols that replicate traditional financial services without centralized intermediaries. Tokenized securities currently exist largely outside of DeFi, because DeFi protocols are generally permissionless and incompatible with the KYC/AML requirements of regulated securities. An emerging intersection is "institutional DeFi" or "permissioned DeFi," where regulated entities seek access to on-chain liquidity while maintaining compliance controls. BlackRock BUIDL's integration with Ondo Finance illustrates this nascent TradFi-DeFi bridge; the institutional DeFi use case requires purpose-built compliance layers rather than direct access to existing permissionless DeFi protocols.

Current evidence suggests tokenized securities are more likely to complement traditional capital markets over the next decade than replace them. Listed equity markets provide deep liquidity and established infrastructure that tokenized alternatives cannot yet match. Specific capital markets functions, including settlement, corporate actions processing, custody record-keeping, and cross-border collateral management, are plausible migration targets for DLT-based infrastructure as the technology and regulatory framework mature.

Frequently Asked Questions About Tokenization of Securities

What is the difference between a security token and a cryptocurrency?

A security token represents legal ownership of a regulated financial asset (such as equity, debt, or a fund interest) and is subject to applicable securities laws, investor protection requirements, and mandatory compliance controls. A cryptocurrency is a native digital asset whose value derives from network demand, scarcity, or utility rather than ownership of a traditional regulated instrument. Security tokens must be issued under a securities registration or exemption and traded on regulated venues; most cryptocurrencies face no equivalent obligation. For the full treatment of this distinction, see the security token comparison table above.

Are tokenized securities legal in the United States?

Yes, tokenized securities are legal in the United States when issued and traded in compliance with federal securities law. Issuers typically conduct security token offerings under Regulation D (private placement to accredited investors without SEC registration), Regulation S (offshore offerings to non-US investors), or Regulation A+ (up to $75 million to the general public). The SEC applies the Howey Test to determine whether a token constitutes a security; tokens that satisfy all four prongs are subject to full securities law compliance regardless of their label. Secondary trading must occur on an SEC-registered ATS or national securities exchange. For the complete regulatory framework, see the US regulatory section above.

Can retail investors buy tokenized securities?

Most tokenized security offerings in the United States are restricted to accredited investors under Regulation D, which requires individual net worth above $1 million (excluding primary residence) or annual income above $200,000. Regulation A+ offerings, capped at $75 million, can include non-accredited retail investors subject to investment limits. Some international platforms, including Archax in the UK and ADDX in Singapore, operate under different eligibility frameworks that may accommodate a broader investor base. The accredited investor threshold remains a significant access barrier for US retail participation, though regulatory evolution could change this over time. For specifics, see the investor qualification section above.

What is the difference between a security token offering and a traditional IPO?

A traditional IPO requires full SEC registration, an underwriting syndicate, national exchange listing, and T+2 settlement, and is open to all public investors. A security token offering under Regulation D requires no SEC registration, can be conducted without traditional underwriters through a tokenization platform like Securitize or Polymath, and settles on-chain. STOs reach a smaller investor base (primarily accredited investors) and operate with significantly less secondary market depth than exchange-listed equities. The operational and compliance cost of an STO is substantially lower than an IPO, but so is the resulting liquidity and investor reach.

What blockchain networks are used for security token issuance?

Both public blockchains and permissioned blockchains are used, depending on the issuer's requirements. The Ethereum blockchain is the most widely used public blockchain for security token issuance, used by BlackRock BUIDL, the European Investment Bank's 2021 digital bond, and numerous STOs. Stellar is used by Franklin Templeton's BENJI fund for its speed and low transaction costs. Avalanche was used by KKR's tokenized PE fund via Securitize. Permissioned blockchains, including ConsenSys Quorum (JPMorgan Onyx), Hyperledger Fabric, R3 Corda, and Goldman Sachs's GS DAP, are preferred by institutions requiring transaction privacy and governance control. For a detailed comparison, see the public vs. permissioned blockchain table above.

How does the Howey Test apply to security tokens?

The Howey Test (from SEC v. W.J. Howey Co., 1946) defines an investment contract as an investment of money in a common enterprise with an expectation of profits derived from the efforts of others. The SEC applies this four-part test to digital token offerings to determine whether they constitute securities. Most security tokens satisfy all four prongs: investors contribute capital expecting financial returns generated by the issuer's management of the underlying asset. Tokens structured as utility tokens or governance tokens are not automatically exempt; the SEC's analysis focuses on the economic reality of the arrangement rather than the label applied. For educational context, see the US regulatory section above.

What are the biggest risks of investing in tokenized securities?

Key risks include regulatory uncertainty as frameworks continue to evolve and enforcement priorities shift; thin secondary market liquidity in most tokenized asset markets despite theoretical liquidity benefits; smart contract technical vulnerabilities including code bugs and private key management failures; digital asset custody risk at platforms with limited qualified custodian infrastructure; platform and counterparty risk if the ATS operator faces regulatory action or insolvency; and cross-chain interoperability limitations that restrict token transferability across different blockchain platforms. Each offering carries its own specific risk factors that should be assessed alongside these general risks. For the complete risk framework, see the risks and challenges section above.

What is BlackRock BUIDL and why is it significant?

BlackRock BUIDL (BlackRock USD Institutional Digital Liquidity Fund) is a tokenized money market fund launched in March 2024 on the Ethereum blockchain, with Securitize as transfer agent. The fund holds US Treasury bills, cash, and repo agreements, with daily income distributed automatically to token holders through smart contracts. Its significance derives from the identity of the issuer: BlackRock is the world's largest asset manager, and its decision to deploy a regulated fund product on public Ethereum provided a landmark institutional validation for the tokenization sector. BUIDL's integration with Ondo Finance demonstrated an emerging pathway for traditional regulated assets to interact with on-chain protocols in a compliance-maintaining structure.

How large is the tokenized securities market and what is the growth forecast?

The tokenized real-world asset market stood at approximately $300 to $400 billion on-chain as of 2024, according to DeFi Llama RWA tracking data, with tokenized US Treasuries and money market funds representing the largest categories. Market projections vary significantly by scope and methodology: BCG estimates tokenized illiquid assets could reach $16 trillion by 2030; Roland Berger projects $10.9 trillion; McKinsey's conservative case is $2 trillion. Near-term growth is driven by institutional adoption of tokenized bonds and money market funds, improving regulatory clarity in the US and EU, and infrastructure investments by SWIFT and DTCC. For the full market outlook, see the market size section above.

Key Takeaways: What Tokenization of Securities Means for the Market

Tokenization of securities represents a structural shift in how regulated financial assets are issued, transferred, and held, one that institutional adoption has moved from theoretical discussion to operational reality.

• Definitional clarity matters. Tokenized securities are regulated financial instruments recorded on a distributed ledger, categorically distinct from cryptocurrencies, utility tokens, and NFTs, and subject to the same investor protection frameworks as traditional stocks and bonds
• The regulatory framework is established and maturing. Securities law applies to tokenized securities in the US, EU, Singapore, and other major jurisdictions; what remains evolving is the specific implementation guidance and cross-border harmonization
• Institutional adoption is real, not theoretical. BlackRock, JPMorgan, the European Investment Bank, Franklin Templeton, and KKR have all completed live tokenization projects with verifiable facts, and this is an operational reality as of 2024–2025
• Benefits are genuine but current-state caveats apply. Fractional ownership, settlement efficiency, and programmable compliance are real capabilities; secondary market liquidity and custodian infrastructure remain works in progress
• Growth projections are directionally consistent but wide in range. BCG's $16 trillion estimate by 2030 reflects the upper bound of institutional optimism; McKinsey's $2 trillion conservative case reflects different adoption assumptions; the actual outcome depends on regulatory catalyst timing and infrastructure maturation

Current evidence suggests the decade ahead will see DLT-based infrastructure take on a growing share of specific capital markets functions, including settlement, corporate actions, and cross-border collateral management, even as public equity market structures continue to serve their existing function effectively.

Related Reading

• What Is Tokenization? Digital Assets Explained
• BlackRock USD Institutional Digital Liquidity Fund

This article is intended for informational and educational purposes only and does not constitute legal, financial, investment, or tax advice. Tokenized securities are subject to applicable securities laws and regulations, which vary by jurisdiction. Regulatory requirements for issuing, trading, or investing in tokenized securities may differ significantly across the United States, European Union, Singapore, United Kingdom, and other jurisdictions. Individuals and entities considering a tokenized securities offering or investment should engage qualified securities counsel and financial advisors in their relevant jurisdiction before taking any action.