6.1 Why Regulation Is Not the Enemy of RWAs
- Why a tokenized real-world asset depends on law in a way a native crypto token does not, and which legal questions code cannot answer
- What happened to tokenized stock exposure sold through crypto platforms, from Mirror to FTX and Binance, and to a token sale the SEC reached only afterward
- Which legal wrappers hold the largest tokenized Treasury products, and the one condition behind the rules regulators opened in 2026
- Where regulation has slowed, fragmented or unsettled tokenization, dated as of 27 September 2026
For a native crypto token, the case that regulation is mostly a cost is easy to make. The token's value does not rest on any promise made off the chain, so the ledger is close to the whole of the deal. This section tests that argument against a different class of asset, not the one it was built for.
A tokenized real-world asset does not work the same way. The token is a claim on something that exists off-chain, and tokenizing it does not change what that something legally is (Section 2.1). Its value therefore depends on whether a court, somewhere, will enforce the claim against an issuer, a custodian and the world at large. UNIDROIT's 2023 Principles on Digital Assets and Private Law put the point plainly: "Other law applies to determine the existence of, requirements for, and legal effect of any link between the digital asset and the other asset, including the effect of a transfer of the digital asset on the other asset."1 The Principles take no position on whether such a link holds or what it does; that question, they say, belongs to the law of the state that otherwise governs the matter, regulatory law included.
That is this section's argument, in three parts. For a real-world asset, law and regulation supply three things a ledger cannot on its own: a record of title that binds people who were never party to the transfer, protection for the holder when an intermediary fails, and admission to the balance sheets and market infrastructure where institutional money actually sits. The record assembled below does not show these rules themselves as the source of friction; it shows friction concentrated in uncertainty, in rules that diverge across borders and in rules calibrated to the wrong risk. Section 1.1 already recorded the frameworks that went live between 2021 and 2024; this section asks what those frameworks actually do for the person holding the token, and it sets out the counter-record too, the places where regulation has slowed, fragmented or unsettled the market.
Every figure and status below is stated as of 27 September 2026, and nothing here is a legal opinion for any specific transaction or jurisdiction (Section 1.4).
What the Law Supplies That Code Cannot
Title. Switzerland passed its Distributed Ledger Technology Act on 25 September 2020, and the Federal Council brought the Act's ledger-based securities provisions into force from 1 February 20212; the statute as a whole was fully in force by 1 August 2021 (Section 1.1). The Act added a new category to the Swiss Code of Obligations, the ledger-based security, called in German the Registerwertrecht: a right that exists because the parties agree to record it in a securities ledger, and that can be exercised and transferred only through that ledger2. A companion provision protects a buyer who acquires the right from whoever the ledger shows as its owner, even where that seller had no right to sell, unless the buyer acted in bad faith or with gross negligence, and it discharges an obligor who pays whoever the ledger names as creditor2. Germany took a parallel but separate route. Its Electronic Securities Act, the eWpG, entered into force on 10 June 2021: a security may now be issued by an entry in an electronic securities register rather than by printing a certificate, that entry carries the same legal effect as a certificated security, and the security itself is treated as a thing, a Sache, under the Civil Code3. A register that records crypto securities under the Act must run on a system the statute requires to resist tampering3. Section 4.2 already described the bonds Siemens issued under this Act; this section does not restate their size.
Failure. The same Swiss statute answers a second question: what happens to a holder's claim when the party running the ledger fails. It added a rule to the Debt Enforcement and Bankruptcy Act under which crypto-based assets that a bankrupt party controls, but has promised to keep available at all times for someone else, are handed over to that person, provided the assets are individually allocated to them or to a group of holders in which each one's share is clearly identifiable2. In the United States, one bankruptcy court decided the question on the platform's own contract. In the Celsius case, the bankruptcy court held on 4 January 2023 that "the issue of ownership of the assets in the Earn Accounts is a contract law issue," and found that under Celsius's own Terms of Use, the cryptocurrency assets became Celsius's property the moment they were deposited, leaving the holders of roughly 600,000 Earn accounts as unsecured creditors rather than owners4. Celsius was a crypto lending platform, not an issuer of real-world assets, but the method carries over: a statute and a set of contract terms, not the ledger, decided who owned what.
Finality. A completed transfer is not automatically safe from a counterparty's later insolvency. The EU's Settlement Finality Directive makes transfer orders and netting "legally enforceable and binding on third parties even in the event of insolvency proceedings against a participant," but only inside a system a member state has designated and notified to the European Securities and Markets Authority5. A blockchain transaction that settles outside a designated system does not carry that protection on its own.
The record. Even where a token trades actively, the question of which record is legally authoritative is often answered off-chain. The European Securities and Markets Authority reported on 10 September 2026 that tokenized equities have grown mainly through "wrapped" structures, and that "because legal ownership remains off-chain, token transfers do not convey legal title"6. Franklin Templeton's BENJI, described by its sponsor as the first US-registered mutual fund to use a public blockchain as its official system of record, keeps that record through its transfer agent's own blockchain-integrated system (Section 4.1), not through the chain by itself. Which record counts as title, in other words, is a choice made by statute, by a prospectus or by contract, not a property of the technology.
The solid path traces four legal questions a token has to answer before it becomes a claim a court will enforce: whether the ledger entry is the legal title, who owes the holder and on what terms, whose asset it is if an intermediary fails, and whether a completed transfer is final against a failed participant's creditors. Each is answered by law outside the chain. The dashed path shows what the ledger supplies on its own, a balance, marked in red, which is not the same thing as a right. The diagram simplifies: the four questions are not always asked in this order, each jurisdiction answers them on its own terms, and many live products answer the first question with a register that a transfer agent, not the chain, keeps off it.
The table below sets out four questions a holder needs answered, what the ledger records about each on its own, and where the actual answer comes from2345.
| The holder's question | What the ledger records | Where the answer comes from |
|---|---|---|
| Is the entry the legal title? | Which address holds the token | Property and securities law, for example Switzerland's ledger-based securities (2021) and Germany's electronic securities (2021) |
| Does a buyer keep a token bought from someone not entitled to sell it? | That a transfer happened | Good-faith acquisition rules, for example the Swiss Code of Obligations' Article 973e |
| If the platform or custodian fails, whose is the asset? | Nothing about ownership | Insolvency and segregation law, and the platform's own terms, as in the Celsius case (2023) |
| Is a completed transfer final against a failed participant's creditors? | A confirmed transaction | Settlement finality law, which in the EU protects only designated systems |
Where the Earlier Experiments Ended
Mirror. In SEC v. Terraform Labs, the district court's opinion of 28 December 2023 describes Mirror Protocol's mAssets as tokens "whose value would 'mirror' the price of a pre-existing non-crypto asset, such as a publicly traded security," minted by depositing collateral worth 150% or more of the reference stock's value7. The holder, the court wrote, "would thus hold the value of the deposit without holding the underlying reference stock or its attendant ownership interests"7. The SEC made no argument that an mAsset is itself a security, its counsel conceding the point, and the court held that an mAsset does not meet the statutory definition of a security-based swap7. Neither regime, in other words, ended up applying to mAssets in that case, not the security-based swap rules, by the court's holding, and not the securities rules, by the SEC's own concession. Terraform's later bankruptcy gave mAsset buyers a separate route. Its crypto loss claim procedures cover purchases made before "the Second De-Peg" on 13 May 2022, presume the covered tokens worthless as of the petition date of 21 January 2024, and provide for pro rata distributions, while warning that a claimant's recovery "may be materially less" than the loss claimed8. The eligible list names Mirror's mAssets among the covered tokens, including mAAPL and mTSLA9.
FTX. In a report filed on 27 December 2023, the valuation expert retained by the FTX debtors counted 57 tokenized stocks and $55.4 million of customer claims tied to them as of FTX's petition time, tradable, she understood, only on FTX's own exchanges10. Each token was "claimed to be collateralized by the underlying stock," but, she wrote, "I have not seen documents showing the extent to which these tokenized stocks were collateralized in practice, if at all"10. She treated the resulting customer claims as a financial contract between the customer and FTX to track a stock price, valued as a dollar claim as of the petition date of 11 November 202210. Every fact here is the debtors' own expert's evidence, not a court's finding.
Binance. On 16 July 2021 Binance announced that its stock tokens were "products issued and sold by CM-Equity AG, Germany," stopped new purchases immediately "to shift our commercial focus to other product offerings," and closed out remaining positions on 15 October 2021 at their executed prices, while EEA and Swiss users could move their balances to CM-Equity AG's own portal11. The same day, Hong Kong's Securities and Futures Commission warned that stock tokens "are likely to be 'securities'" under Hong Kong law, that an unregulated platform may offer no independent check on whether a token "is actually backed by an equivalent depository portfolio of the underlying share," and that "legal remedies may be unavailable"12.
After the sale. Paragon offered and sold digital tokens between August and October 2017, raising about $12 million. On 16 November 2018 the SEC instituted and simultaneously settled proceedings under which Paragon undertook to register its PRG tokens as securities and to run a claims process notifying buyers of their claims under Section 12(a) of the Securities Act13. Paragon defaulted on that process; on 15 December 2022 the SEC approved the disbursement of $167,665.15 from a Fair Fund to eligible investors, about 1.4% of the amount raised, by this section's arithmetic13. The buyers' relief, in this case, came after the sale, through a settled order and a Fair Fund years later.
Section 4.1 already recorded that when Harbor Trade's borrower defaulted, Maker's senior position went into a court-supervised workout. ESMA reports that tokenized equities grew from about €0.3 billion at the end of 2024 to about €1.9 billion by the end of June 2026, mostly through wrapped structures that "may also introduce additional layers of intermediation, complexity for investors, and new counterparty dependencies"6. Section 4.3 already described two of today's structures, xStocks' tracker certificates and Robinhood's EU derivative contracts. The question the 2021 and 2022 cases raised, who owes the holder and whether the backing can actually be checked, is still the question a buyer of a wrapped structure has to ask.
The table below sets out what the holder held, what happened, and where the holder ended up, for four products from the earlier cycle789101113.
| Product | What the holder held | What happened | Where the holder ended up |
|---|---|---|---|
| Mirror mAssets | A token tracking a stock's price, with no share or ownership interest | The Terra ecosystem's "Second De-Peg" on 13 May 2022; in December 2023 a court held mAssets were not security-based swaps | For purchases before the Second De-Peg, a dollar loss claim in Terraform's bankruptcy, eligible for pro rata distributions |
| FTX tokenized stocks | Per the debtors' expert, a contract with FTX tracking a stock price, tradable only on FTX | FTX filed for bankruptcy on 11 November 2022 | Per the expert, a dollar claim at the petition-time price; she saw no documents showing actual collateral |
| Binance stock tokens | Products issued and sold by CM-Equity AG | Binance stopped sales on 16 July 2021, citing its commercial focus | Positions closed on 15 October 2021 at executed prices |
| Paragon (PRG) tokens | Tokens from a 2017 offering that raised about $12 million | Settled SEC order of 16 November 2018; the issuer defaulted on its claims process | $167,665.15 approved for disbursement from a Fair Fund |
Where the Money Sits
On 27 September 2026, rwa.xyz put the distributed value of tokenized US Treasury products at $14.69 billion14. The ten largest products held $12.64 billion of that total, 86.0% of it, by this section's arithmetic on rwa.xyz's own figures. Two limits apply to every number that follows. rwa.xyz counts tokens distributed on public chains, not a fund's total assets, so a product that also issues ordinary book-entry shares is larger than its rwa.xyz figure suggests. And Ondo's OUSG holds BUIDL and BENJI among its own assets (Section 4.1), so its row below overlaps with both of theirs.
The values below are rwa.xyz's own14; the legal forms come from each issuer's own documents, USYC from Circle15, iBENJI from the Form D of the fund rwa.xyz names as its issuer16, WTGXX from WisdomTree17, JLTXX from J.P. Morgan18, and USTB from Superstate19; USDY and BUIDL are described in Section 4.3 and BENJI and OUSG in Section 4.1.
| Rank | Product | Legal form, per the issuer's documents | Category | Value |
|---|---|---|---|---|
| 1 | Circle USYC | Tokens representing shares of a Cayman Islands registered mutual fund, offered to non-US persons only | Offshore, non-US only | $2.40B |
| 2 | Ondo USDY | A tokenized note for non-US investors | Offshore, non-US only | $2.28B |
| 3 | BlackRock BUIDL | A British Virgin Islands company sold under Rule 506(c) and Section 3(c)(7) | Private offering | $2.24B |
| 4 | Franklin iBENJI | A fund claiming Rule 506(b) and Section 3(c)(7), not a registered investment company | Private offering | $1.72B |
| 5 | WisdomTree WTGXX | A fund registered under the Investment Company Act of 1940 | US-registered fund | $1.23B |
| 6 | Franklin BENJI (FOBXX) | A US-registered mutual fund | US-registered fund | $669M |
| 7 | JPMorgan JLTXX | A US registered government money market fund | US-registered fund | $596M |
| 8 | Superstate USTB | A series of a Delaware statutory trust, not registered under the Investment Company Act | Private offering | $555M |
| 9 | ChinaAMC CUMIU | Not confirmed from the issuer | Not confirmed | $554M |
| 10 | Ondo OUSG | A tokenized fund open only to accredited investors who are qualified purchasers | Private offering | $393M |
By these categories, funds registered under the US Investment Company Act held 19.7% of the top ten's value, private offerings sold under US exemptions held 38.9%, products sold only to non-US persons held 37.0%, and one product's form could not be confirmed, 4.4%. Every product whose form could be confirmed, 95.6% of the top ten's value, sits inside securities law of some kind, registered or exempt; none is a token of the kind Mirror, FTX or Binance once offered. US-registered funds hold only about a fifth of the top ten's value.
What institutions say. A survey of 351 institutional decision-makers by Coinbase and EY-Parthenon, published in March 2026 and fielded in January 2026, found an "uncertain regulatory environment" the most significant barrier to investing in tokenized assets, named by 67% of respondents, down from 73% a year earlier; among respondents planning to increase their digital asset holdings in 2026, 65% named greater regulatory clarity as a key driver20. Coinbase co-produced the survey, EY-Parthenon did not independently verify the responses, and most of what the survey asks about is crypto assets generally rather than tokenized real-world assets specifically20.
What the industry asks for. Robinhood's letter to the SEC's Crypto Task Force of 25 April 2025 asked for a federal framework "that avoids a patchwork of state-specific requirements," and in the same letter called the accredited-investor limitations "outdated, unnecessary" and asked that they be eliminated21. SIFMA's letter of 26 November 2025 took a different position, that the success of tokenized securities markets rests on "the same fundamental investor protection and market integrity principles" that already govern the securities markets, and warned that broad exemptions risk creating "parallel, but unequal trading ecosystems"22. Both are interested parties: Robinhood asked for a single federal standard and fewer eligibility gates, SIFMA for the same investor protections that already apply to traditional securities. Neither asked for tokenized securities to face no rules at all.
Equivalence Is the Price of Admission
The Basel Committee's cryptoasset standard, in the version effective from 1 January 2026, gives tokenized traditional assets that meet its conditions, what the standard calls "Group 1a," "generally" the same credit risk-weighted asset treatment as the non-tokenized asset. Its second classification condition requires that "all rights, obligations and interests arising from the cryptoasset arrangement are clearly defined and legally enforceable in all the jurisdictions where the asset is issued and redeemed," that the legal framework ensure settlement finality, and that banks carry out their own legal review of the arrangement23. Section 1.2 already covers the Group 2 treatment, the 1,250% risk weight and the US capital FAQs of March 2026; Section 4.2 already covers the permissionless restriction and the Committee's expedited review.
The table below sets out five openings from 2026 against the condition attached to each2324252627.
| Date | Authority | What it permits | The condition |
|---|---|---|---|
| 1 January 2026 (version effective) | Basel Committee standard | Credit risk weights generally equal to the non-tokenized asset's, in the banking book | Rights legally enforceable where the asset is issued and redeemed; settlement finality |
| 27 January 2026 | European Central Bank | DLT-based assets as Eurosystem collateral from 30 March 2026 | Issued in a central securities depository and settleable in an eligible system reachable via T2S |
| 18 May 2026 | UK Prudential Regulation Authority | The same prudential treatment as the non-tokenized equivalent | Identical legal rights and comparable underlying risks |
| 17 September 2026 | US Securities and Exchange Commission | Trading of tokenized NMS stock on exempt venues until 17 September 2031 | The same rights and privileges as the traditional stock; synthetic tokens excluded; volume caps |
| 24 September 2026 | CFTC staff | Staff would not object to tokenized money market fund shares as uncleared swap margin | The fund qualifies under CFTC margin rules; the tokens carry the same or functionally equivalent rights |
The common thread across all five openings is that the token must match the traditional instrument's own terms: as equal legal rights, in the Basel standard, the PRA's letter, the SEC's order and the CFTC staff's FAQs, or, for the Eurosystem, as the same eligibility criteria applied to any other marketable asset. The same FAQ that opens the door to tokenized money market fund shares as margin closes another one: "crypto assets, including payment stablecoins, are not included in the list of eligible margin collateral" for uncleared swaps27. The SEC's order excludes any token that gives only "synthetic exposure" to a stock26. The Eurosystem accepts only DLT assets issued inside a central securities depository, and says it is still exploring "if, how and under what criteria" assets issued on DLT outside eligible settlement systems could become eligible24. Each of these openings, in other words, favors a tokenized traditional asset over other kinds of crypto assets.
The PRA tells firms to focus on an asset's risk characteristics "rather than the specific technology or type of ledger (eg permissioned vs permissionless)"25. The Basel standard binds banks only in jurisdictions that choose to implement it23; the PRA's letter sets interim supervisory expectations under existing rules; the CFTC's FAQs are staff views that create no binding rule; and the SEC's order is a temporary, conditional exemption that itself asks the public for comment252726.
Where Regulation Does Get in the Way
Pilot design. Section 4.2 already reported ESMA's count of three authorized DLT market infrastructures as of 31 May 2025. The European Commission's impact assessment of 4 December 2025 counted "only four participants in over two years" in the EU's DLT Pilot Regime, adding that "this has stifled innovation potential in the EU"; respondents to the Commission's own consultation called the divergence in member states' securities and corporate laws "the most pressing challenge"28. The Council of the EU's progress report of 25 June 2026 records that "the main outstanding issue is the exact level of the aggregate market value threshold" in the Commission's proposed reform, with "broad support for the need to cater for market initiatives that go beyond the proposed EUR100bn scale" of that proposal, though views differed on how; no Council negotiating mandate existed as of that date29.
Classification. The European Banking Authority wrote on 24 September 2026 that difficulties applying the definitions of "financial instrument" and "asset-referenced token" "may be posing obstacles to the emergence of tokenised investment products, in particular delaying product launch due to protracted processes involving legal opinions and supervisory dialogues." The same token, the EBA said, may be a financial instrument in one member state and an asset-referenced token in another, and gold tokens in particular "have proved particularly challenging to classify"30.
Bank capital. On 19 August 2025 the Global Financial Markets Association and other trade associations told the Basel Committee that its cryptoasset standard's "restrictive qualification standards, combined with otherwise punitive market and credit risk capital treatments, effectively make it uneconomical for banks to meaningfully participate in the cryptoasset market," that parts of the standard "materially impede scaling" uses involving tokenized deposits, government securities and money market funds, and asked the Committee to pause implementation31. As of 20 September 2026, the Committee's own expedited review of the standard had published no revised text naming permissionless ledgers (Section 4.2). The PRA ties its own interim expectations to "the completion of the BCBS targeted review" and expects to consult on a UK framework "in 2028 at the earliest"25. The two timetables do not run together.
Instability. The SEC said on 7 April 2026 that in fiscal year 2025 "the Commission made a necessary course correction" in its approach to crypto enforcement, listing seven crypto enforcement actions the current Commission dismissed beginning in February 2025, and quoting Chairman Paul Atkins's statement that the Commission "has put a stop to regulation by enforcement"32. Separately, the Digital Asset Market Clarity Act, H.R. 3633, passed the House 294-134 on 17 July 2025; a Senate cloture vote on the motion to proceed failed 49-50 on 15 September 2026, and a motion to reconsider was entered the same day; the bill was not law as of 27 September 202633. A regulator reversing its own prior course and a bill stalled in the Senate are both forms of the same thing, uncertainty, whichever direction a reader prefers.
Divergence. European Central Bank Executive Board member Piero Cipollone said on 23 March 2026: "Distributed ledger technology cannot harmonise corporate law across 27 Member States, reconcile divergent securities regulations or override national insolvency regimes that treat the same asset differently depending on where it is held"34. For capital markets to truly integrate, he added, "there is no substitute for legislative work"34.
Not all of it is regulation. IOSCO's final report on tokenization, published in November 2025, found that tokenization "remains a small part of the financial sector," that many of its promised benefits, "particularly concerning secondary market liquidity," "appear not to be fully achieved for now," and linked the fragmentation of liquidity across products to "challenges for interoperability between blockchains"35.
Read together, the frictions these sources describe are uncertainty, pilot design, cross-border divergence and classification difficulty, not the existence of rules themselves. None of the parties quoted in this section, not the trade associations, not the EBA, not the Commission, asks for tokenized securities to sit outside securities law. What each asks for is a rule that is clearer, more consistent, or better calibrated to the risk it addresses.
Same Activity, Same Risk, Same Rules
IOSCO states the underlying principle as "same activity, same risk, same regulatory outcomes"35; the UK's Prudential Regulation Authority describes its own version of the same idea as a "'same risk, same regulatory outcome' approach" to policymaking25. The Token Taxonomy paper traces the principle back to IOSCO's earlier work on crypto-asset recommendations (Section 7.4 of the Token Taxonomy paper).
The principle cuts in two directions at once. It denies a tokenized instrument any discount relative to its traditional equivalent: the SEC's exemptive order requires that a tokenized NMS stock carry "the same rights and privileges" as the traditional stock26, and SIFMA asked regulators to hold tokenized securities to "the same fundamental investor protection and market integrity principles" that already apply22. It also removes a penalty a token might otherwise carry simply for being a token: the PRA looks past the type of ledger an instrument runs on25, and the US capital FAQs treat an eligible tokenized security the same as its traditional form (Section 1.2).
For a real-world asset, the tokens whose legal claim actually matches a traditional instrument receive that instrument's treatment, no more and no less. The tokens that did not match one fared worse: the holders of Mirror's mAssets and FTX's tokenized stocks ended up with claims in a bankruptcy proceeding rather than a shareholder's rights, and Paragon's buyers got their remedy only after the sale, through a settled order years later. On this record, regulation is not the enemy of real-world asset tokenization. Uncertainty, divergence and miscalibration are.
Bridge to Section 6.2
The argument above still needs a map of the rules as they actually stand, jurisdiction by jurisdiction. Section 6.2 sets out that patchwork, including the places where different regimes conflict with each other. Section 6.3 looks at the jurisdictions whose frameworks for tokenized assets are already operating or already being written. Section 5.6 will take up jurisdictional fragmentation itself as a risk. Section 6 opened with the premise this section has now tested; the sections that follow build the map.
- For a tokenized real-world asset, the law is part of the product: title, good-faith acquisition, protection when an intermediary fails and settlement finality all come from statute and contract, as in Switzerland's ledger-based securities and Germany's electronic securities, not from code.
- Tokenized stock exposure sold through crypto platforms ended as bankruptcy claims or a wind-down: Mirror's mAssets, FTX's tokenized stocks and Binance's 2021 stock tokens. In Paragon's case, the SEC approved a Fair Fund disbursement of $167,665.15, about 1.4% of the amount raised, by this section's arithmetic.
- On 27 September 2026 the ten largest tokenized Treasury products held 86% of the category's $14.69 billion on rwa.xyz. Every one whose legal form could be confirmed from its issuer's own documents, 95.6% of the top ten's value by this section's arithmetic, sat inside securities law, registered or exempt, but US-registered funds held only about a fifth of the top ten's value.
- The openings of 2026, Basel's Group 1a, Eurosystem collateral eligibility, the PRA's letter, the SEC's tokenized-stock exemption and the CFTC staff's FAQs on margin, share one condition: the token must meet the traditional instrument's own terms, as equal legal rights under Basel, the PRA, the SEC and CFTC staff, or as the Eurosystem's ordinary collateral criteria.
- Where regulation did get in the way, the record points to pilot design, classification difficulty and uncertainty rather than to the existence of rules: the European Commission counted "only four participants" in the DLT Pilot Regime, the EBA said classification difficulties "may be" delaying product launches, the current SEC described a "necessary course correction" in its own crypto enforcement, and the Digital Asset Market Clarity Act failed a Senate cloture vote on 15 September 2026.