Researcher
SEC released a statement on tokenized securities. The statement lays out how tokenized securities are classified and SEC’s views on each model.
SEC broadly categorizes tokenization models into four types.
▪️Issuer-Sponsored Tokenized Securities
▪️Tokenized Security Entitlement
▪️Linked Security
▪️Security-Based Swap
First, Issuer Sponsored Tokenized Securities involve issuers integrating blockchain into shareholder registries that were previously managed in off chain databases.
Only the form changes, not the substance. These tokens can be issued in full compliance with existing securities laws, and @Securitize is a representative example of this model.
Second, in the Tokenized Security Entitlement model, what gets tokenized is not the security itself but the rights an investor holds indirectly through a broker or custodian.
This is done by integrating blockchain into a registry system managed by a third party. A representative example is @The_DTCC.
Third, a Linked Security is a new security issued by a third party in its own name while referencing another company’s security as the underlying asset.
Investors only have rights to the security issued by the third party and have no rights whatsoever to the referenced company. For this reason, SEC noted that this model requires caution.
Lastly, a Security Based Swap is a swap style contract that provides synthetic price exposure by tracking another security as the underlying asset.
Unlike Linked Securities, this is not a security but a derivative contract, so regulatory requirements are much stricter. A representative example is the stock tokens offered by @RobinhoodApp, which is why the service cannot be offered in the US.
This SEC statement is highly significant because it clearly presents a framework for classifying tokenized securities and explains SEC’s position on each model.
Through this statement, SEC made it clear that direct tokenization models used by platforms like @Securitize pose no issues at all. In the past, SEC even sent a no action letter to @The_DTCC regarding tokenization.
A security remains a security even when it is tokenized. But recent tokenization structures show many attempts to sidestep regulation. Investors need to clearly understand what rights actually come with the tokenized securities they are investing in.
