SEC States That Tokenized Assets Are Considered Securities Before Being Viewed as Technology

SEC Affirms Legal Status of Tokenized Securities

According to a statement released Wednesday by three divisions of the SEC, placing a security on a blockchain does not alter its legal classification. The agency clarified that digital assets representing securities are still bound by the same registration rules as their traditional counterparts.

In a collaborative announcement, the Divisions of Corporation Finance, Trading and Markets, and Investment Management emphasized that securities laws apply to tokenized assets just as they do to conventional securities.

The statement noted, “Whether a security is issued on-chain or off-chain, or how ownership is recorded, does not impact the application of federal securities regulations.”

On-chain transactions refer to the transfer of securities directly on a blockchain or distributed ledger, rather than through standard database systems.

The SEC explained that issuers may offer tokenized securities either as a distinct class or alongside traditional shares. If the tokenized version closely resembles the traditional security in terms of rights and privileges, it may be considered the same class under federal law, regardless of its digital or physical form.

The only significant difference, according to the statement, is that “instead of keeping the main record of security holders in a traditional database, the issuer or its agent maintains this record on one or more blockchain networks.”

This guidance comes as the SEC has adjusted its approach to cryptocurrency enforcement, having dropped or closed over a dozen cases in the past year, including actions against major crypto firms regarding whether tokens, staking services, or wallet infrastructure were unregistered securities.

While the SEC’s guidance reiterates that securities laws remain in force regardless of technological innovation, it is the same legal framework that has underpinned many of the cases the agency has recently set aside.

However, the statement does not address the more complex issue of whether crypto-native products, such as tokens and staking programs, should be classified as securities in the first place.

Ongoing Uncertainty Around Ethereum

The situation with Ethereum highlights the unresolved questions left by the SEC’s statement. In 2024, Consensys disclosed in a lawsuit that the SEC had, in March 2023, launched an internal investigation into “Ethereum 2.0,” issuing a formal order that treated Ethereum as a security.

The Commission approved the investigation the following month, which contrasted with public remarks from former SEC Chair Gary Gensler, who repeatedly avoided clarifying whether ether was considered a security. Ultimately, the SEC closed its Ethereum inquiry without taking enforcement action and declined to comment further.

SEC’s Approach to Crypto Enforcement

The SEC seems to have moderated its overall position on cryptocurrencies, but it continues to pursue cases, such as those involving Bitcoin mining services, which the agency alleges are unregistered securities offerings.

Disclosure: Consensys is among 22 investors in Decrypt, which maintains editorial independence.

Legal Status Unchanged, Operational Impact Significant

Andrew Rossow, a public affairs attorney and CEO of AR Media Consulting, told Decrypt that the SEC’s statement makes it clear that “tokenization changes nothing legally.” However, he pointed out that, in practice, tokenization significantly alters how markets operate, and the current securities framework is not designed for blockchain-based systems.

Rossow also noted that the SEC’s statement does not clarify whether blockchain ledgers can legally replace traditional recordkeeping systems. “If a blockchain serves as the main ledger for ownership or bond registration, but the SEC still requires transfer agents and registered custodians, then the blockchain is more decorative than authoritative,” he explained.

He added that while the SEC claims to enforce “technology neutrality,” it still relies on assumptions specific to certain technologies. “Neutrality in classification hides the lack of neutrality in how things work operationally,” Rossow said.

According to Rossow, the SEC’s guidance “maintains the status quo, postpones structural changes, and places the responsibility on innovators to figure out compliance before seeking regulatory guidance.”