Issuer-Backed Tokens Get Green Light
On Wednesday, the U.S. Securities and Exchange Commission (SEC) released new guidance addressing how tokenized stocks—digital representations of shares on blockchains—fit under existing securities laws. The statement, issued jointly by the Divisions of Corporation Finance, Investment Management, and Trading and Markets, makes clear that only issuer-authorized tokenized securities can represent true equity ownership. This means that companies themselves must integrate blockchain records into their official shareholder registers for these tokens to be recognized as legitimate shares.
Issuer-sponsored tokenized securities may be offered as a separate class or alongside traditional shares, but if they are substantially similar, they can be treated as the same class for some federal regulatory purposes. The SEC emphasized that the only technical difference is that the master securityholder file might reside on one or more crypto networks instead of a conventional off-chain database.
The SEC’s joint statement was published on June 26, 2024, marking the first time all three divisions addressed tokenized securities together.
Third-Party Tokens Face Tougher Scrutiny
The new SEC guidance draws a sharp line between issuer-backed tokens and those created by third parties without company involvement. Third-party tokenized stocks often rely on custodial models—where an intermediary holds real shares and issues tokens representing indirect ownership—or synthetic models, which create instruments linked to share prices but without actual ownership of the underlying asset. Both approaches are now squarely under federal securities law scrutiny.
A recent example highlights the risk: OpenAI publicly disavowed so-called tokenized “equity” linked to its shares offered through Robinhood in Europe, clarifying it had no connection to those products. This incident illustrates how third-party schemes can create confusion among investors about what they actually own.
On paper, these tokens offer exposure to real assets—but in practice, legal rights may be limited or nonexistent.
Blockchain Doesn’t Trump Securities Law
The SEC’s message is unambiguous: putting a security on a blockchain does not alter its legal status. Whether ownership is recorded on-chain or off-chain, the same registration requirements and investor protections apply. In 2024, Consensys revealed that the SEC had authorized an internal investigation into “Ethereum 2.0” as early as March 2023, explicitly treating Ethereum as a security during that probe. Although the agency closed its Ethereum investigation without enforcement action, it continues to pursue cases involving Bitcoin mining services it alleges are unregistered securities offerings.
According to coindesk.com, the SEC’s divisions reiterated that legal treatment, registration requirements, and disclosure obligations remain unchanged regardless of whether securities are digitized or not.
The only operational shift is technological: shareholder records may move to crypto networks. Everything else—the need for compliance, disclosures, and investor protections—remains intact.
Guidance Aims to Curb Market Confusion
The SEC’s clarification comes at a time when U.S. legislators are working on a market structure bill aimed at providing further regulatory clarity for digital assets. Meanwhile, SEC leadership has been developing a token taxonomy to help market participants understand which products fall under specific legal regimes.
Recent events underscore why this guidance matters: Pudgy Penguins’ phygital products have generated over $13 million in retail sales and surpassed 1 million units sold worldwide. Their Pudgy Party game also exceeded 500,000 downloads in just two weeks—demonstrating both consumer appetite for digital assets and the potential scale of tokenization efforts beyond pure finance.
It remains uncertain how many existing third-party tokenized stock products will survive under this stricter regime.
The Snapshot
- •On June 26, 2024, the SEC issued joint guidance clarifying rules for tokenized stocks and securities.
- •Only issuer-sponsored tokenized securities, with blockchain integrated into official shareholder registers, represent true equity ownership under SEC rules.
- •Third-party tokenized stocks, including custodial and synthetic models, are subject to full federal securities law scrutiny and registration requirements.
Key variables ahead
If issuers move to integrate blockchain records into official shareholder registers as described in the SEC’s new guidance, only those issuer-sponsored tokenized securities will immediately be recognized as true equity ownership under federal securities laws, while third-party tokenized stocks will remain subject to stricter scrutiny and may not confer actual ownership rights.
