SEC Commissioner Peirce: Tokenized Assets Are Securities, Require Compliance

Hester Peirce, a commissioner at the U.S. Securities and Exchange Commission (SEC), has reaffirmed that tokenized assets remain classified as securities, emphasizing the need for compliance with existing securities laws. This clarification comes as the interest and investment in digital assets, particularly those representing traditional financial instruments on blockchain platforms, continue to grow.

Peirce's remarks highlight the SEC's ongoing scrutiny of the cryptocurrency market, noting that tokenized assets, which are digital representations of real-world assets such as stocks, bonds, or real estate, have gained traction due to their potential to enhance liquidity and accessibility. However, the SEC's position underscores the legal complexities and risks associated with these innovative financial products.

The commissioner specifically addressed concerns over "wrapped" models, where one type of token is converted into another to facilitate transactions across different blockchain networks. Peirce warned that these models could expose investors to significant legal risks, as the underlying assets may not comply with securities regulations. This cautionary note serves as a reminder to market participants of the importance of due diligence and regulatory adherence.

The SEC's stance on tokenized assets has implications for both issuers and investors. For issuers, it means navigating a complex regulatory landscape to ensure compliance with securities laws. For investors, it underscores the need for caution and thorough vetting of digital asset offerings. The SEC's approach aims to protect investors from potential fraud and market manipulation, while also fostering innovation within the financial sector.

Peirce's comments also reflect the broader regulatory challenges faced by the cryptocurrency industry. As digital assets continue to evolve, regulators worldwide are grappling with how to balance innovation with investor protection. The SEC's position on tokenized assets is part of a broader effort to establish clear guidelines and enforce existing regulations in the rapidly changing landscape of digital finance.

Tokenization typically follows two approaches. One involves issuers creating blockchain-based versions of their own shares. The second involves custodians wrapping third-party securities and issuing tokenized versions as receipts. Both formats remain within the legal definition of a security, according to Peirce. She warned that the wrapped model introduces counterparty risk, where the token holder relies on the custodian’s control and solvency over the original asset. Peirce advised token distributors to review the SEC’s corporate finance staff bulletin and consult with agency staff early when seeking regulatory exemptions.

Some token types may be classified as “receipts for a security.” Others that do not convey beneficial ownership could be treated as “security-based swaps.” These swaps are not permitted for off-exchange trading among retail investors. Peirce emphasized that all token formats must comply with disclosure, registration, and trading requirements, regardless of their blockchain-based design.

Peirce’s statement followed a rise in tokenized equity activity on public blockchains. Solana-based equity tokens issued under the xStocks framework by Backed Finance reached a total value of $48.53 million by July 4. That figure rose above $50 million by July 6. BNB Chain has since adopted the xStocks format. The chain will host tokenized shares of Apple and Tesla as BEP-20 assets. This rollout includes collaborations with Kraken and Backed, aiming to provide round-the-clock access through DeFi systems. Kraken stated that BNB Chain’s integrations will allow users to post tokenized stocks as collateral. It also confirmed these tokens remain securities, regardless of usage in DeFi environments.

Bitget added xStocks to its platform on July 9, enabling trades through standard spot accounts without requiring new wallets. Peirce concluded by noting that the SEC remains willing to modernize securities regulations. She said the agency is ready to work with firms seeking tailored exemptions where current rules may not fit new technology.