Questions for Tokenization Feasibility Study
The following multiple-choice questions address the four major steps in evaluating a tokenization project’s feasibility. These questions help determine legal compliance, tax efficiency, ownership recognition, and licensing requirements before launching a Security Token Offering (STO).
Securities Classification & Regulatory Clarity
Understanding whether a token qualifies as a security determines its regulatory requirements and investor eligibility.
How does the jurisdiction classify security tokens?
Clearly defined as securities under existing financial laws – Security tokens are fully regulated under national securities frameworks.
Considered financial instruments but subject to digital asset laws – Security tokens follow a hybrid legal approach with special tokenization regulations.
Unclear classification, legal uncertainty exists – The country has no explicit guidance on how tokenized securities are regulated.
Prohibited or heavily restricted – Security tokens cannot be issued, traded, or held under local law.
What registration or exemption requirements apply to security tokens?
Full securities registration required before issuance – Security tokens must be approved by the financial regulator before launch.
Private placement exemptions are available – Security tokens can be offered to accredited or institutional investors only without full registration.
No formal registration process, but regulatory oversight exists – Issuers may be subject to reporting obligations or compliance reviews.
No registration required, security tokens operate freely – The jurisdiction allows unregulated issuance and trading.
Can security tokens be legally traded on secondary markets?
Yes, but only through regulated securities exchanges – Security tokens must be listed on licensed Alternative Trading Systems (ATS) or similar platforms.
Allowed on both regulated exchanges and decentralized platforms – Security tokens can be traded via DEXs and centralized exchanges.
Trading is restricted to private secondary markets – Security tokens can only be transferred via direct agreements or closed networks.
Secondary trading is prohibited – Security tokens cannot be resold or transferred without regulatory approval.
Tax Implications in Tokenization
Taxation impacts capital gains, investor returns, and overall cost efficiency of the tokenization project.
How are capital gains from security token sales taxed?
High capital gains tax (above 20%) – Security token sales are heavily taxed, reducing investor profitability.
Moderate capital gains tax (10-20%) – Taxation applies but with allowances for long-term holdings.
Low or zero capital gains tax – The jurisdiction offers tax incentives or exemptions for digital assets.
Unclear tax policy – No specific taxation rules exist for security tokens.
Are income distributions (dividends, rental income) subject to withholding tax?
Yes, full withholding tax applies – Issuers must deduct taxes before distributing income to token holders.
Reduced withholding tax for foreign investors – Tax treaties allow lower rates for international participants.
No withholding tax on security token distributions – Investors receive full earnings without deductions.
Tax treatment is unclear – Uncertainty exists regarding income distribution taxation.
Does the jurisdiction impose additional transaction taxes on security token transfers?
Yes, stamp duty, VAT, or financial transaction tax applies – Security token trades incur government fees.
Low transaction tax or fixed administrative fee – Token transactions have minimal cost implications.
No transaction taxes apply – Security tokens can be traded without additional charges.
Tax treatment for token transfers is unclear – No official guidance exists.
Ownership & Transferability
Ownership laws determine legal rights, transferability, and investor protection in tokenized assets.
Can foreign investors legally own security tokens in this jurisdiction?
Yes, no restrictions on foreign ownership – Non-residents can freely purchase and hold tokenized assets.
Foreign investors are allowed, but government approval is required – Certain restrictions or regulatory processes apply.
Foreign ownership is restricted in specific asset classes – Tokenized real estate or corporate shares may have limitations.
Foreign investors are prohibited from holding security tokens – The country does not allow non-residents to participate.
Does the jurisdiction recognize fractional ownership through tokenization?
Yes, legally recognized under investment and property laws – Tokenized assets are fully enforceable as fractional ownership.
Allowed only if structured through an SPV or legal entity – Investors hold security tokens via corporate or fund structures.
Not legally recognized, traditional ownership applies – Tokenized shares do not grant legal property rights.
Unclear legal treatment for fractional ownership – No clear regulation on digital ownership models.
Can security tokens be freely transferred between investors?
Yes, fully transferable via blockchain without restrictions – Smart contract-based peer-to-peer (P2P) transfers are legal.
Transferable, but subject to approval or KYC requirements – Only verified or approved investors can participate.
Transfers require additional government registration – Security token trades must be manually recorded in government databases.
Ownership transfers are restricted or prohibited – Security tokens cannot be resold freely.
Compliance & Licensing for Tokenized Assets
Licensing determines whether the issuer must obtain regulatory approvals before issuing and trading security tokens.
Is a VASP (Virtual Asset Service Provider) license required?
No, security tokens are exempt from VASP requirements – VASP laws apply only to crypto exchanges or custody services.
Required only if security tokens are actively traded on blockchain – Applies when security tokens function as tradeable virtual assets.
Mandatory for all security token issuers – The jurisdiction requires a VASP license before launching tokenized assets.
Unclear or undefined regulatory stance – No clear guidance on VASP requirements.
Is a broker-dealer or Alternative Trading System (ATS) license required?
No, as long as the issuer is the only liquidity provider with KYC/AML enforcement – Single-issuer liquidity pools are exempt from brokerage laws.
Required only if third-party trading is facilitated – Applies when external investors trade via a regulated marketplace.
Mandatory for all security token trading – A broker-dealer or ATS license is required for any form of trading.
Unclear licensing requirements for security tokens – The country has no defined rules for secondary trading.
By answering these multiple-choice questions, tokenization issuers can assess legal feasibility, compliance risks, and regulatory obligations before launching an STO.
Last updated
Was this helpful?