On January 28, 2026, the Divisions of Corporation Finance, Investment Management, and Trading and Markets (collectively, the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) issued another in a series of statements providing guidance on the application of the federal securities laws to various types and aspects of cryptocurrency, in particular, certain taxonomies related to “tokenized securities.”  In this statement, the Staff emphasized that the form of an instrument, or whether it is “tokenized,” do not affect its essential character, or, in other words, whether the instrument is a “security,” a “security-based swap” or a “swap.”  While potentially helpful to market participants, the current statement is consistent with past related Staff guidance on the subject.

Overview of Tokenized Securities

A “tokenized security” is a financial instrument that is considered to be a “security” under Section 2(a)(1) of the Securities Act of 1933, as amended (“Securities Act”).  A tokenized security is represented by a crypto asset with ownership records maintained on a crypto network, such as a blockchain or similar distributed ledger technology (“DLT”).  In the statement, the Staff distinguishes between:  (1) securities tokenized by or on behalf of the issuer and (2) securities tokenized by unaffiliated third parties.

Issuer-Sponsored Tokenized Securities

In the issuer-sponsored model, the issuer issues the security in the form of a crypto asset, that is, it integrates DLT into the recordkeeping system used to record owners and transfers of the security (a “master securityholder file”).  The Staff points out that the material difference between tokenized securities and securities issued in traditional book-entry form is how the master securityholder file is maintained (i.e., on one or more crypto networks—an “onchain” database—rather than an “offchain” database).  Alternatively, an issuer may tokenize a security by issuing it off-chain and providing a crypto asset to securityholders.  This crypto asset can be used to indirectly effect transfers of the security, which lets the issuer know to transfer ownership of the security on the master securityholder file.

The Staff also considers that a tokenized security can constitute a separate class distinct from securities held in a traditional format, noting that if the rights and privileges of the two classes of securities are substantially similar, the two securities may be considered the same class for certain purposes under the federal securities laws.

Third-Party Sponsored Tokenized Securities

Third parties unaffiliated with an issuer may also tokenize the issuer’s securities.  Third-party tokenized securities may provide different ownership interests in the issuer and different rights from those of holders of the underlying security, and holders of a tokenized security may be exposed to risks specific to the third-party tokenizer (e.g., bankruptcy) that would not impact a holder of the underlying security.  The Staff distinguishes between two principal third-party models:

Custodial Tokenized Securities:  A third party issues a crypto asset representing an entitlement to an underlying security that the third party holds in custody.  The crypto asset evidences the holder’s indirect interest in the underlying security.  Transfers are recorded on the third party’s recordkeeping systems, which may be onchain or offchain.

Synthetic Tokenized Securities:  A third party issues a crypto asset that provides synthetic exposure to a reference security, but does not confer rights in the underlying security.  These may take the form of linked securities or security-based swaps that are formatted as crypto assets:

  • Linked Securities:  A linked security is an obligation of the third party itself that provides synthetic exposure to a reference security, not of the issuer of the reference security, and does not convey rights or benefits in the issuer of the security.  The holder’s return is based on the value of or events relating to the reference security.  Linked securities may be structured as debt instruments (e.g., structured notes), equity instruments (e.g., exchangeable stock), or in some cases, security-based swaps.
  • Security-Based Swaps:  A third party may also tokenize a security by issuing a security-based swap, which provides synthetic exposure to a reference security or events relating to an issuer of the security, but does not typically convey any equity, voting, information, or other rights with respect to the referenced security.
  • Tokenized Securities Remain Defined by Their Economic Reality: All tokenized securities discussed by the Staff share a single characteristic:  “the format in which a security is issued or the methods by which holders are recorded (e.g., onchain vs. offchain) does not affect application of the federal securities laws.”  The economic reality of an instrument, not the name of the instrument, determines the character of the instrument, and therefore, whether the federal securities laws apply.