What are tokenized assets and why they matter (quick primer)

Tokenized assets are representations of ownership, entitlement to cashflows, or other legal interests in off-chain assets (real estate, corporate debt, funds, invoices, commodities, Treasuries) that are recorded, transferred, or cleared on a distributed ledger. Tokenization enables fractional ownership, faster settlement, programmable rights, cross-border access and new liquidity models — all attractive for real-world asset investing.

Not all tokens are equal legally. Broadly:

• On-chain tokens: Legal rights and title information are intended to be carried on-chain (either via a legally recognized token contract or where law expressly recognizes the ledger entry as evidence of title).
• Off-chain tokens: The token is a digital representation of rights recorded in a traditional (off-chain) register; the ledger provides operational convenience but legal title remains in the off-chain registry or a legal wrapper (trust, SPV).
• Hybrid models: The most common real-world deployments — legal title remains off-chain, but the token is linked by contract or custodial arrangement to the off-chain title and governed by clear legal documentation.

Understanding these legal distinctions is critical because regulators and courts will analyse whether the token creates enforceable property rights, constitutes a security, or is merely a contractual claim on a custodian/SPV.

Market size & growth (context for regulators and investors)

As of mid-2025, the Real-World Asset (RWA) tokenization market has entered a phase of accelerated expansion, with multiple industry reports and aggregator datasets confirming its rapid growth trajectory. From 2022 to 2025, the market has grown several-fold, underscoring the shift from experimental pilots to large-scale institutional adoption. Current estimates place the size of on-chain tokenized positions between $20 billion and $30 billion in 2025, with activity concentrated in tokenized investment funds, tokenized treasuries, and tokenized real estate instruments.

This surge has been catalyzed by a series of institutional launches beginning in 2023, as leading asset managers, global fund sponsors, and regulated financial institutions started issuing tokenized fund units and piloting tokenized products on public and permissioned blockchains. In parallel, a growing ecosystem of tokenized U.S. Treasuries and digitally native real estate securities has evolved from early-stage proofs of concept into liquid, tradable on-chain instruments. These developments illustrate a broader structural shift toward the integration of traditional assets with decentralized financial rails.

Growth drivers:

Several key forces are fueling this rapid market expansion:

• Large global asset managers, private funds, and banks are increasingly forming strategic partnerships with tokenization platforms to issue, distribute, and manage tokenized financial products.
• These collaborations are bridging the gap between traditional capital markets and digital asset ecosystems, accelerating institutional trust and adoption.
• Policymakers in Asia and the European Union have launched dedicated sandbox programs, pilot regimes, and industry-wide initiatives to explore tokenized securities and digital asset infrastructure within regulated frameworks.
• These efforts are helping to establish clarity and confidence for both issuers and investors, lowering perceived regulatory risks and setting the stage for cross-border harmonization.
• Significant progress has been made in digital custody solutions, blockchain token standards, and compliance tooling.
• Capabilities such as programmable transfer restrictions, automated KYC/AML checks, and institution-grade custody have enhanced security, trust, and interoperability across platforms.
• Growing interest from both institutional and retail participants in fractional ownership models is expanding access to traditionally illiquid asset classes.
• At the same time, tokenized assets are increasingly being used as on-chain collateral within DeFi ecosystems, creating new use cases and liquidity pathways that reinforce adoption.

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Comparative regulatory landscape: US, EU, Asia (how jurisdictions treat on-chain / off-chain / hybrid)

A common thread across global jurisdictions is that blockchain itself is regarded as a technology layer rather than a mechanism that alters legal identity or ownership rights. Regulators do not typically recognize tokens as a fundamentally new legal category; instead, they map tokenized assets onto existing frameworks such as securities law, commodities law, or property law, and then apply established rules accordingly. However, while the core principle is consistent, the practical implementation, regulatory emphasis, and level of market recognition vary considerably between regions.

United States

In the United States, regulators have taken a substance-over-form approach to tokenization. The Securities and Exchange Commission (SEC) has made it clear that the tokenization of an asset does not change its essential legal character: a tokenized security is still treated as a security, regardless of whether it exists on a blockchain or in a traditional ledger. As a result, market participants must comply with the full range of U.S. securities laws — including registration requirements, disclosure obligations, and broker-dealer rules — whenever the underlying instrument exhibits the economic characteristics of an investment contract.

From an operational perspective, purely on-chain legal recognition remains limited at the federal level. Most U.S. tokenization initiatives are structured through legal wrappers, such as special purpose vehicles (SPVs), trusts, or custodial registries, which ensure that tokenized instruments remain enforceable under current law. While blockchain can serve as a record of ownership and facilitate settlement, it generally operates in parallel with off-chain registries that remain the definitive source of legal title. Moreover, platforms must navigate overlapping regimes for broker-dealers, transfer agents, custodians, and settlement infrastructure.

The United States also presents a relatively high enforcement risk. The SEC has prioritized unregistered securities offerings, inadequate disclosures, and investor protection concerns, while agencies such as FinCEN and the IRS focus on anti-money laundering compliance and tax reporting, respectively. At the state level, Uniform Commercial Code (UCC) revisions are beginning to address how collateral and security interests can be perfected in tokenized assets, but the application is still evolving. Overall, the U.S. approach is fragmented, with federal and state layers creating complexity for issuers and intermediaries.

European Union

The European Union has pursued a more integrated and forward-looking regulatory posture, particularly through the introduction of the Markets in Crypto-Assets Regulation (MiCA), which came into force in 2024. MiCA establishes a harmonized framework for crypto-asset service providers, stablecoins, and market integrity, while tokenized securities continue to fall under existing capital markets rules such as the Prospectus Regulation and MiFID II. This dual approach ensures that while unregulated crypto-assets are brought under supervision, traditional financial instruments — even when tokenized — remain subject to established securities law.

Crucially, the EU has also made progress on recognizing distributed ledger technology (DLT) in financial market infrastructure. Through the DLT Pilot Regime, member states and EU institutions are testing new frameworks that allow securities to be issued, traded, and settled directly on DLT-based systems, with certain exemptions from conventional infrastructure requirements. In some jurisdictions, tokenized funds and structured permissioned blockchain projects have already been authorized, provided that the legal documentation explicitly maps blockchain ledger entries to the underlying units of ownership. This experimentation is gradually paving the way toward DLT-based registers with legal validity for certain classes of securities.

Key challenges in the EU remain centered around cross-border harmonization and supervisory consistency. While MiCA provides an EU-wide passporting regime, the application of securities law to tokenized instruments can still vary depending on member state interpretations. Nonetheless, the EU approach emphasizes licensing, investor protection, transparency, and supervisory oversight, providing a relatively clear framework compared to the United States.

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Asia (Singapore, Hong Kong, Japan and others)

• Singapore (MAS): Pro-innovation, active support for tokenization infrastructure and pilots. MAS runs frameworks, public-private initiatives and concrete guidance to accelerate tokenization commercialization while maintaining AML and investor safeguards. Singapore’s Project Guardian and industry outreach highlight measured facilitation of tokenized asset use in financial markets.
• Hong Kong: Regulatory bodies (SFC, HKMA) have created staged approaches for tokenized funds and tokenized products and published guidance for virtual asset trading platforms, including client asset protections and operational expectations. Hong Kong has signaled a structured entry path for tokenized investment products.
• Japan: The Financial Services Agency (FSA) has been focused on investor protection, licensing, and AML, with strict exchange and custodian frameworks for crypto assets.
• Regional differences: Asia tends to favor sandbox/pilot programs and clear licensing pathways for platforms, often quicker to adopt enabling frameworks than the US while stressing strong AML/KYC and licensing.

Token legitimacy, ownership & custody — what rights token holders really have

The core legal question in RWA tokenization is: does the token equal enforceable legal ownership, or is it a contractual claim on a custodian/SPV?

Proof of title & title registries

• Traditional title systems (land registries, securities central depositories) are the gold standard for legal enforceability. Tokenization projects must either integrate with these registries or create alternative structures that national law recognizes (e.g., trusts, share registers, fund unit records).
• Court recognition: Courts examine contractual documentation, corporate structures, and whether the ledger entry is recognized by contract and applicable law as evidencing title. Without statutory recognition, tokens often function as evidence of beneficial ownership rather than the sole legal title.
• Practical approach: Most large programs use an SPV or custodian holding legal title off-chain; the token represents an interest in that vehicle and is backed by contractual remedies.

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Custody models

• Institutional custody: Licensed custodians provide legal segregation, insurance, and operational controls. For regulated securities, custody arrangements may also be subject to custody rules for client assets.
• Smart-contract custody / on-chain custody: Technically feasible but legal recognition varies. Regulators ask: can custody arrangements protect investor assets and satisfy insolvency laws?
• Hybrid custody: Custodian holds legal title or fiduciary claim off-chain; on-chain tokens provide transferability and programmability.

What token holders can expect

• Voting / governance rights: Only as contractually defined. Tokens can be designed to carry voting, dividend, or redemption rights, but the enforceability depends on the legal documentation.
• Remedies in insolvency: Token holders need explicit contractual protections; in some jurisdictions tokens may be viewed as unsecured contractual claims unless specific custody and segregation standards are met.
• Title risk: Without statutory ledger recognition, token holders must rely on the legal structure (e.g., the SPV’s contracts, trustee duties) rather than the ledger alone.

Regulatory risks: securities law, AML/KYC, tax, investor protection

Securities law

• Tokenized securities remain securities if they meet securities tests (investment contract, expectations of profit). Regulators (e.g., SEC) have reiterated that tokenized securities must comply with securities law — registration, disclosure, custody, transfer agent rules — unless a valid exemption applies. Expect enforcement where offerings avoid registration or omit investor protections.
• Broker-dealer / exchange rules: Platforms trading tokenized securities may be required to register or partner with regulated trading venues.

AML / KYC

• AML/CTF obligations apply to token platforms, marketplaces and custodians. Enhanced due diligence is common for institutional tokenized assets and cross-border flows.
• Travel rules and VASP obligations have been rolled into local frameworks; platforms must implement identity verification, transaction monitoring, and reporting.

Tax implications

• Tax complexity: Tokenization can complicate VAT, stamp duty, capital gains and withholding tax analysis. Jurisdictional differences abound: some treat token transfers as taxable events; others look through to the underlying asset to determine tax collections.
• Reporting burdens: Custodians and platforms must often provide tax reporting and comply with FATCA/CRS where applicable.

Investor protection

• Disclosure: Full legal disclosure, fund prospectuses, risk disclosure and investor suitability checks are necessary for regulated products. Tokenized offerings cannot circumvent traditional disclosure regimes.
• Fraud & custody risk: Enforceable custody, insurance and segregation standards are key to reducing investor loss.

Frameworks for standardization: token standards, disclosure requirements, liability frameworks

The continued growth of the tokenization ecosystem has highlighted the need for standardized frameworks that balance technical efficiency with legal enforceability and investor protection. Regulators and market participants alike are increasingly focused on aligning token standards, disclosure requirements, and liability frameworks to ensure that tokenized assets operate within robust and predictable rules of engagement. At the same time, technology providers are building compliance-focused features into blockchain protocols, enabling smoother integration between on-chain activity and off-chain legal structures.

Token standards & technical best practices

The foundation of tokenization lies in interoperable token standards that enable assets to move across platforms, wallets, and custodians while retaining compliance functionality. Widely adopted formats such as ERC-20 for fungible assets and ERC-1400 for security tokens — along with equivalents on other chains — establish common ground for issuers and service providers. These standards often incorporate metadata layers that allow tokens to carry attributes relating to ownership restrictions, transfer rules, and compliance checks.

A critical technical requirement is the ability to implement on-chain transfer restrictions. Permissioned mechanisms such as allowlists, beacon registries, and gated transfer hooks are already in use to ensure that tokens can only be transferred between eligible investors and in line with securities transfer restrictions. These technical tools are essential in bridging the flexibility of blockchain settlement with the regulatory realities of investor eligibility, AML/KYC compliance, and securities law.

Legal & disclosure standards

To complement technical advances, tokenization also relies on legal and disclosure frameworks that reduce ambiguity and safeguard investor rights. Standardized legal templates — including off-chain subscription agreements, SPV documentation, and prospectus disclosures — help ensure that the attributes of a token are clearly mapped to enforceable legal rights. This legal standardization reduces the risk of disputes and provides regulators with a consistent basis for supervision.

Equally important are audit and custodial standards, which build trust in the underlying assets. Independent third-party audits, custody attestations, and proof-of-reserves frameworks are increasingly required to verify that tokenized instruments are fully backed by the assets they represent. These practices not only strengthen investor confidence but also reduce systemic risk in tokenized markets.

Liability frameworks

One of the most pressing regulatory questions is who bears responsibility in the tokenization value chain. Issuers, custodians, tokenization platforms, and service providers all play essential roles, and liability must be clearly allocated in contracts and, where applicable, statutory rules. Liability may arise from a range of events, including negligence, operational failures, insolvency, or misrepresentation of asset backing. Without clarity, disputes can undermine trust in tokenized markets.

To mitigate these risks, insurance and compensation mechanisms are gaining traction. Custody insurance policies, protection against smart contract vulnerabilities, and industry compensation schemes are being introduced as backstops to cover investor losses. This mirrors traditional capital markets, where investor protection schemes and custodial liability frameworks have long been established.

Technologies enabling legal compliance

A growing set of compliance-enabling technologies is emerging to align blockchain operations with regulatory expectations. Permissioned ledgers offer institutions enhanced access controls, privacy features, and governance, making them attractive for regulated offerings. Conversely, public blockchains provide liquidity and connectivity to decentralized finance (DeFi) ecosystems but require more sophisticated gating, wrapping structures, and legal wrappers to remain compliant.

Bridging the gap between the blockchain and legal systems are oracles and legal oracles, which bring off-chain legal events — such as redemptions, lien filings, or insolvency triggers — into on-chain environments. Similarly, regulatory compliance toolkits have emerged, including on-chain KYC attestation tokens, allowlists, sanctions-screening integrations, and automated transfer checks, all of which enable tokenized assets to comply with real-world rules. Finally, smart contract upgradability and governance models are being designed to support dispute resolution and emergency controls in line with legal frameworks, providing necessary safeguards for institutional adoption.

Liquidity, market structure & typical use cases

Tokenization is gaining traction across a wide range of asset classes, each with distinct benefits and adoption dynamics. Funds and ETFs have emerged as one of the most prominent use cases, with tokenized fund units enabling more efficient distribution, enhanced transparency, and easier secondary trading for both institutional and retail investors. A milestone in this space was BlackRock’s tokenized treasury fund, which served as a highly visible proof point and significantly accelerated broader market interest. Beyond funds, tokenized treasuries and money market instruments have become particularly attractive to liquidity pools and digital custodians, as they allow near-instant settlement, fractional ownership, and 24/7 market access. In 2024, an Abu Dhabi-led initiative successfully tokenized exposure to a U.S. Treasury ETF, highlighting global appetite for regulated experiments in this sector. Real estate and commercial property represent another core vertical, with tokenization enabling fractional ownership, reducing entry barriers for investors, and supporting cross-border participation. Platforms such as Tokeny and others have published case studies showing that tokenized real estate products can improve accessibility and create liquidity in traditionally illiquid markets. Similarly, tokenization of debt, receivables, and commodities is opening new opportunities in invoice financing and structured debt markets, where smart contracts can automate repayments and enable programmable cash flows.

While the benefits are compelling, liquidity in tokenized markets remains highly dependent on market structure and regulatory context. Primary issuance provides initial liquidity, but sustained secondary market activity hinges on the presence of institutional market makers, the development of on-chain order books, and the establishment of permissioned secondary venues that comply with securities laws. A major risk is liquidity fragmentation, as assets spread across different chains, custodians, and regulatory jurisdictions, which can reduce efficiency and increase costs for investors. To mitigate this, interoperability standards and harmonized custody practices are critical. Ultimately, the role of institutional market makers and tokenized fund sponsors will be central in ensuring continuous liquidity and building investor confidence, laying the foundation for tokenized assets to mature into a truly scalable component of global capital markets.

Risks to watch — operational, legal, market

Key risks in RWA tokenization span operational, legal, and market dimensions, requiring careful management as the sector matures. Legal uncertainty remains a major challenge, as the absence of statutory ledger recognition in many jurisdictions means tokens often represent contractual claims rather than direct ownership. Securities enforcement risk is also significant—misclassification or failure to register tokenized securities can lead to regulatory action. Custody and insolvency concerns arise when poorly structured custody arrangements expose token holders to counterparty failures. On the technical side, smart contract vulnerabilities pose risks of loss or misallocation, with limited legal recourse available on-chain. Additionally, fragmented tax regimes and cross-border inconsistencies create complexity that may discourage both retail and institutional adoption. Together, these risks highlight the importance of robust structuring, compliance, and technical safeguards in scaling tokenized markets.

Future trends

Future trends in RWA tokenization point to deeper institutional involvement, greater legal clarity, and stronger technical standardization. Large asset managers and custodians are set to expand their tokenized offerings, bringing with them the regulatory discipline and operational rigor needed for scale. At the same time, more jurisdictions are expected to pilot statutory recognition of ledger records for specific asset types, helping to reduce title and ownership risks. Industry groups, regulators, and standards bodies will push toward harmonized frameworks for token metadata, transfer restrictions, and disclosure templates, enabling greater interoperability. On the technology side, RWA tokens will increasingly find use as collateral in regulated DeFi applications, but within permissioned pools that ensure compliance. Finally, the market is likely to undergo consolidation, with platforms and token standards aligning around proven legal and technical models, reducing fragmentation and paving the way for broader adoption.

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Conclusion

RWA tokenization in 2025 is no longer a concept but a rapidly growing reality, with significant expansion in 2024–2025 driven by institutional pilots, tokenized funds, and treasury products. However, it is important to recognize that a token is a technology, not a new legal framework—regulators in the US, EU, and Asia continue to treat tokenized instruments under existing laws governing securities, property, and custody, with variations in permissiveness and sandboxing across jurisdictions. In practice, legal structuring matters far more than the choice of blockchain, as most implementations rely on legal wrappers, custodians, and contractual mapping to ensure enforceability. Today, hybrid models—combining off-chain legal title with on-chain transferability—dominate the landscape. While regulatory risks such as securities classification, AML/KYC compliance, taxation, custody, and insolvency remain real, they are manageable through early regulatory engagement, strong disclosures, and standardized technical and legal approaches. Looking ahead, the development of interoperable token standards, audited custody solutions, clear legal templates, and cross-border regulatory alignment will be key to transforming today’s pilots into large-scale institutional markets.