On March 17, 2026, the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) issued joint guidance classifying crypto assets in five categories:
- Digital commodities, such as Bitcoin and Ethereum;
- Digital collectibles, including NFTs and Meme Coins;
- Digital tools, which are digital items purchased for use;
- Stablecoins, such as covered stablecoins and payment stablecoins; and Digital securities, which are tokens representing traditional securities and investment contracts.
The key takeaway from the joint guidance is that most crypto assets are not securities. The SEC finds that the legal treatment of digital assets is determined by economic reality rather than technology. While distributed ledger technology and tokenized assets can facilitate more efficient, transparent and cost‑effective transactions than traditional methods, increased tokenization activity makes strict compliance with applicable legal and regulatory requirements essential. This alert outlines the SEC’s guidance on the application of existing securities laws to tokenized securities.
Tokenization and Securities Transactions
The joint guidance does not change the SEC’s Statement on Tokenized Securities, issued on January 28, 2026, which confirmed that securities represented on blockchains or other distributed ledger technology are subject to federal securities laws and regulations. The SEC defines a tokenized security as a financial instrument “numerated in the definition of security under the federal securities laws that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.” [See also our prior alerts: Digital Assets and the IRS, and Cryptocurrency 101.] Regardless of how a financial instrument is represented – whether in traditional form or by a crypto asset – its legal status as a security is unaffected.
When determining how a tokenized product is classified, regulators look at how the product actually works in practice – not what it is called or how it is labeled. The SEC offers guidance on the tokenization of securities falling under two categories: issuer-sponsored tokenized securities and third-party sponsored tokenized securities.
Issuer-Sponsored Tokenized Securities
In an issuer‑sponsored tokenized securities model, companies seeking to raise capital tokenize securities that they issue directly to investors. Companies issuing or authorizing a tokenized security use blockchain technology as the primary record of ownership or as a settlement mechanism. Companies can utilize crypto assets and digital ledger technology in several ways:
- Maintaining its master security holder file on distributed ledger technology;
- Issuing the same class of securities in traditional and tokenized formats;
- Permitting security holders to convert a security to a crypto asset or vice versa;
- Issuing a single class of securities in a traditional format and issuing another class as tokenized securities; or Issuing a transferable crypto asset to maintain off-chain security holder records.
Because issuer-sponsored tokenization changes how ownership is recorded or transferred rather than what is being issued, the SEC finds each of these transactions to be securities transactions.
Third Party-Sponsored Tokenized Securities
A company that does not issue a security can still create a crypto asset tied to an external company’s security. Even though a tokenized security’s value may be linked to a company’s security, the tokenized security does not necessarily grant the holder any rights in the original company. The SEC identifies two models in which a third party tokenizes securities issued by another party: custodial tokenized securities and synthetic tokenized securities.
- In a custodial context, a third party issues a crypto asset representing the holder’s ownership of the underlying security held in the third party’s custody. The third party can either use distributed ledger technology to directly record transfers of the security entitlements or use the on-chain records of crypto asset transfers to maintain off-chain security holder records.
- In a synthetic tokenized security scenario, the third party issues a crypto asset that provides economic exposure to a security without transferring the underlying asset. The SEC identifies two forms of synthetic tokenized securities:
- Tokenized Linked Securities: The tokenized linked security tracks the underlying asset’s value or performance. The linked security can be in different forms, such as a debt instrument (like a structured note) or an equity instrument (such as exchangeable stock). In some cases, the tokenized linked security is treated as a derivative, such as a security based swap.
- Tokenized Security-Based Swaps: A third party can also create a crypto based product that is tied to someone else’s security by issuing what is known as a security based swap in tokenized form. If a crypto asset provides for payments based on the price or performance of a security or on whether certain company related events occur, and does not give the holder ownership of the underlying asset, it may be treated as a security based swap under the securities laws.
Implications
The SEC’s view on tokenization of securities is that the technology used changes, but the regulatory framework that governs them does not change. A company that issues, plans to issue or interacts with tokenized securities must comply with federal securities laws, such as the Securities Act of 1933 and the Securities Exchange Act of 1934. Accordingly, offers and sales of tokenized securities must be registered with the SEC unless an exemption applies, and companies must comply with any required reporting obligations.
Below are key implications for companies considering tokenization:
- A company that plans to use the issuer sponsored tokenization model must ensure that blockchain transfers accurately correspond to legally effective transfers in the company’s official security holder records. Regardless of whether records are maintained or off-chain, companies need to keep accurate ownership records and comply with transfer agent and recordkeeping requirements.
- If a tokenized security provides rights, obligations or benefits that differ from a traditionally issued security, the tokenized security may be considered to be in a separate class of securities. This can trigger additional disclosure, reporting and compliance obligations for the company.
- Companies facilitating or enabling trading in their tokenized securities must determine whether regulated intermediaries are required and ensure applicable registrations are in place. Depending on how tokenized securities are offered, traded and settled, the SEC may require a company to utilize broker dealers, exchanges, alternative trading systems, transfer agents and custodians.
- Where a tokenized security is treated as a linked security or a security-based swap, a third-party issuer and the market for the token are subject to additional regulatory requirements. Companies issuing the underlying securities still need to be aware of how third-party tokenization affects investors’ understanding of its securities and related disclosures.
- Tokenized securities must also comply with state commercial law governing the ownership and transfer of securities. If blockchain transfers do not match the legal rules for transferring securities, companies may risk legal and practical issues.
Bottom Line
The SEC’s guidance arrives during a period of growing institutional interest in tokenized financial assets. Banks, asset managers and fintech companies continue to explore blockchain based settlement systems and tokenized securities. Tokenization efforts are expected to increase, regulated intermediaries will play a more prominent role, hybrid market structures combining blockchain technology with traditional infrastructure will likely emerge, and synthetic tokenized products – particularly those offered to retail investors – may face heightened regulatory scrutiny.
Notwithstanding its recent 2027 budget proposal, which includes a $1.9 billion reduction – an 11 percent decrease from current funding – the SEC has stated that it intends to advance a renewed focus on fiscal discipline, organizational agility and technological modernization, and has also indicated that it plans to prioritize more meaningful enforcement actions.
Accordingly, as tokenized capital markets in the United States continue to evolve, companies developing tokenization structures must ensure compliance within the existing regulatory framework.
If you have questions about how this joint SEC and CFTC guidance may affect your business or compliance obligations, please contact Dale Werts or Alexandria Darden, or your regular Lathrop GPM attorney.