How to Tokenize Securities: SEC Staff Provides a Taxonomy of Different Approaches

On January 28, 2026, staff of the SEC Divisions of Corporation Finance, Investment Management, and Trading and Markets issued a joint statement on tokenized securities addressing different approaches they have observed to tokenize securities. SEC staff generally considers tokenized securities to be securities formatted as, or represented by, a crypto asset, i.e., a digital asset where the record of ownership is maintained in whole or in part on one or more blockchains.

The statement does not discuss the circumstances under which a crypto asset could be considered a security under the federal securities laws but instead describes a taxonomy of the different tokenization approaches. The statement is nonetheless aligned with President Trump’s Executive Order 14178, titled “Strengthening American Leadership in Digital Financial Technology,” in that it makes clear the staff does not view the mere fact that an asset is a crypto asset as relevant to the applicability of federal securities laws.

Issuer-Sponsored Tokenized Securities

One method an issuer may use to tokenize its own securities is to issue a crypto asset to its securityholders and integrate distributed ledger technology (DLT) into the issuer’s master securityholder file, such that a transfer of a crypto asset on a blockchain would result in a transfer of the security on the master securityholder file. Certain information would be recorded on the blockchain, such as wallet address, quantity of securities owned, and issue date, whereas personally identifiable information, including securityholder name and address, would be recorded externally.

An issuer could alternatively maintain its master securityholder file offchain and update the master securityholder file after a transfer of the tokenized security is recorded on a blockchain. Under these circumstances, the transfer of a crypto asset on a blockchain notifies the issuer or its agent to update the master securityholder file. Unlike the first method, however, inasmuch as the transfer on the blockchain does not automatically result in an update of the issuer’s master securityholder file, SEC staff does not view the token as itself conveying any rights, obligations, or benefits of the security.

Under either method of maintaining the master securityholder file, an issuer may issue a tokenized security alongside an uncertificated security of the same class as the tokenized security. Notwithstanding the different formats of the security (uncertificated and tokenized), the securities would be considered the same class where the securities issued convey substantially similar rights and privileges. Where two formats of a security issued by a registered investment company do not convey substantially similar rights and privileges, however, it is important to note that such an issuance would likely be subject to the multiclass provisions of section 18(f) of the Investment Company Act and rules thereunder.

Third Party-Sponsored Tokenized Securities

In the statement, SEC staff also acknowledged that an unaffiliated third party may tokenize an issuer’s securities. Whereas issuer-sponsored tokenized securities would convey the same rights and privileges as the underlying security, third party sponsored tokenized securities may or may not convey the rights, obligations, or benefits of that security.

SEC staff noted that there are two approaches, or “models,” that an unaffiliated third party may use to tokenize securities. In the first model (custodial tokenized securities), a third party acting as custodian of the securities of the issuer would issue crypto assets representing the rights of an underlying security on a blockchain. It would also integrate DLT into the system it uses to record transfers of entitlements to the security, such that a transfer of the crypto asset results in a transfer of the security entitlement to the third party’s record. SEC staff cited the recent no-action letter provided to the Depository Trust Co. as an example of this model.

Alternatively, instead of integrating DLT into the system it uses to record transfers of security entitlements, a third party acting as custodian could manually reflect in that offchain system an onchain transfer of tokens representing the issuer’s securities. In this case, as with the case of the issuer not integrating DLT into its master securityholder file, a transfer of the token itself — without the recording of the transfer on the offchain system — would not be viewed as conveying the rights, obligations, or benefits of the security.

In the second model (synthetic tokenized securities), an unaffiliated third party could issue a crypto asset that provides synthetic exposure to the value of the security or to events related to that security but does not provide any rights, obligations, or benefits of that security. One example of tokenization using this second model that SEC staff has observed is the usage of a reference (or linked) security in the form of a crypto asset issued by the third party providing performance or event related exposure to the security, such as a structured note. A second example noted by staff was the issuance by a third party of a “security-based swap,” i.e., a contract or agreement providing performance or event related exposure to a reference security.

While the statement could be useful in assisting issuers or third parties considering tokenization in understanding different approaches to the process, broader questions involving the appropriate regulatory framework for crypto assets remain to be resolved. Carlton Fields will continue to monitor developments in this area and offer guidance as to their potential impact on the financial services industry.

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