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The Tokenization Fault Line

Why Real‑World Assets and Securities Live in Different Worlds

“Tokenization” has become the all‑purpose answer to everything wrong with finance. Depending on who you ask, it will unlock tens of trillions of dollars, fix settlement risk, rescue DeFi, and make capital markets instantly global.

But behind that single word sit two very different projects:

  1. Tokenizing real‑world assets (RWAs) – turning claims on things like real estate, commodities, private credit or revenue streams into blockchain tokens.

  2. Tokenizing securities – turning the security itself (shares, bonds, fund units) into a native on‑chain instrument that can be traded and settled as part of regulated market infrastructure.

Regulators are increasingly worried that the market is conflating these. In a 2025 final report, IOSCO (the global securities watchdog) warned that different tokenization structures can leave investors unsure whether they own the underlying asset or “just the token,” and that most projects still sit on top of legacy pipes rather than replacing them. (IOSCO)

From an economics and legal perspective, it’s not just a technical nuance. RWA tokenization and securities tokenization solve different problems, trigger different regulations, and demand different infrastructure.

Yet, in the long run, they will likely converge on the same type of programmable settlement layer.

Two Species of “On‑Chain Assets”

A clean way to think about the divide is to ask a blunt question:

Is the blockchain the legally decisive record of ownership, or just a convenient mirror?

RWA tokenization: the representation layer

In what the industry calls “RWA tokenization”, the blockchain typically acts as a representation layer:

  • A real estate developer places a building into a special‑purpose vehicle (SPV) and issues tokens that represent fractional interests in that SPV.

  • A private credit originator pools loans, then sells tokenized notes backed by cash flows from the pool.

  • A fund or trust holding gold, treasuries or invoices issues tokens that entitle the holder to redeem or claim economic benefits.

In almost all of these cases, the legally decisive record sits off‑chain:

  • Land registries

  • Company share registers

  • Trust or fund registers

  • Loan and collateral registers

The token is a digital receipt or participation claim. It may be well structured and enforceable, but if there is a dispute, a court will look first to the contracts and registries, not to the smart contract.

This is what IOSCO has in mind when it stresses that tokenization today often “layers” on top of existing infrastructure, rather than replacing it, and that claimed efficiency gains have so far been “uneven” and rarely quantified. (IOSCO)

Securities tokenization: the record of reference

Securities tokenization, in its most robust form, is different. Here, the ambition is that the token itself is the security, and the ledger on which it sits is the record of reference for ownership.

Several jurisdictions have already amended law to allow this:

  • The EU’s DLT Pilot Regime (Regulation (EU) 2022/858) lets market infrastructures trade and settle financial instruments (shares, bonds, fund units) on DLT under a special framework. (EUR-Lex)

  • Switzerland’s DLT Act introduced the category of “ledger‑based securities”: rights that are created by entry in a blockchain‑style ledger and can only be transferred via that ledger. (PwC)

In these regimes, a company can issue DLT shares whose only legally valid record is the ledger entry. If you lose the private key (and can’t recover through legal mechanisms), you lose the right. Transfers on‑chain are transfers in law.

That is qualitatively different from an SPV whose share register is in a lawyer’s office and whose token is a claim on that SPV.

The Legal Divide: Property vs. Securities

Legal systems don’t care about buzzwords; they care about which body of law switches on when you issue and trade a token.

2.1 RWAs: property and contracts first, securities sometimes

Most RWA structures sit primarily under:

  • Property law – ownership of land, commodities, art.

  • Contract / commercial law – SPV shareholders’ agreements, loan contracts, trust deeds.

But many RWA tokens will also qualify as securities in practice, depending on how they are structured and marketed (e.g. under the Howey test in the US, or “transferable securities” under EU rules). This is exactly what IOSCO and several national regulators emphasize: calling something an “RWA” doesn’t exempt it from securities law. (IOSCO)

Economically, that means RWA tokenization is a hybrid: the legal and enforcement reality still lives in SPVs, registries and courts, but the access and trading interface is digital and global.

Securities: capital‑markets law all the way down

For clear‑cut securities—shares, bonds, fund units—tokenization does not change their nature. A tokenized security is still a security:

  • In the EU, the DLT Pilot Regime sits alongside MiFID II, CSDR and other capital‑markets rules; participants still have to meet requirements on transparency, market abuse, and investor protection, just delivered via new plumbing. (EUR-Lex)

  • In Switzerland, ledger‑based securities are fully integrated into company and securities law, and trading venues for them are licensed similarly to traditional exchanges. (PwC)

From an economics perspective, this means that securities tokenization is not a “crypto variant” of existing markets; it is an attempt to rebuild core market infrastructure under the supervision of the same regulators.

Two Different Economic Problems

If you look at tokenization through the lens of the BIS and IMF, the crucial question is not “what chain?” but “what friction are we actually removing?” (Bank for International Settlements)

RWA tokenization: access, fractionalization, collateral

RWA tokenization primarily attacks:

  • Access constraints – letting smaller investors buy fractions of large ticket assets (a building, an infrastructure project, a loan portfolio).

  • Distribution and funding – allowing issuers to tap cross‑border capital without full stock‑exchange listings.

  • Collateral usability – enabling otherwise illiquid assets to be pledged into DeFi or structured finance as on‑chain collateral.

The potential gains are real: a more global investor base, lower minimum tickets, and better ability to refinance the real economy.

But the limits are equally real:

  • Enforcement still runs through courts, not smart contracts.

  • Cross‑border insolvency and creditor priority can be messy.

  • Investors rely heavily on the governance and disclosure of the tokenization platform or SPV.

IOSCO’s 2025 review explicitly notes that, so far, “efficiency gains are uneven” and often not backed by hard data, because legacy registries and custodians usually remain in place beneath the tokens. (IOSCO)

Securities tokenization: post‑trade and capital efficiency

Securities tokenization tackles a different set of frictions:

  • Settlement risk and capital lock‑up – the gap between trade execution and settlement (T+2, T+1) forces intermediaries to hold margin and capital.

  • Reconciliation cost – separate ledgers at brokers, custodians, CSDs and payment systems must be aligned after every trading day.

  • Collateral fragmentation – moving collateral across entities and borders is slow and operationally heavy.

The BIS has argued that fully capturing the benefits of tokenization may require a new type of infrastructure: a “unified ledger” that combines tokenized central bank money, commercial bank deposits and tokenized assets on one programmable platform. (Bank for International Settlements)

In such a setup:

  • Delivery‑versus‑payment (DvP) can be atomic—securities and cash change hands in a single on‑chain transaction.

  • Collateral can be mobilized and reused intraday with far less friction.

  • Post‑trade functions (netting, margining, corporate actions) can be partially automated by code.

Here, tokenization is not a new asset; it is a new settlement fabric.

Side‑by‑Side: RWA vs Securities Tokenization

Table 1 – Structural Differences

Dimension
RWA Tokenization
Securities Tokenization

What does the token represent?

Claim on an off‑chain asset or SPV (property, loans, revenue rights, commodities).

The security itself (share, bond, fund unit) under explicit legal frameworks.

Where is the legally decisive record?

Off‑chain registries, contracts and company books; token mirrors them.

On‑chain ledger can be the record of reference (e.g. EU DLT Pilot, Swiss ledger‑based securities). (EUR-Lex)

Primary law domains

Property and contract law, sometimes intersecting with securities regulation.

Corporate and capital‑markets law; securities rules apply end‑to‑end.

Core economic problem solved

Access, fractionalization, capital raising for illiquid assets.

Post‑trade efficiency, settlement risk, and collateral mobility. (Bank for International Settlements)

Main residual friction

Legal enforcement and cross‑border insolvency; reliance on platform governance.

Regulatory complexity and infrastructure concentration risk.

Typical underlying infrastructure

SPVs, traditional custodians, registries, with blockchain as a new interface.

Permissioned or regulated DLT systems designed as trading/settlement venues. (News & warnings | FSMA)

Why Crypto‑Native Platforms Struggle with Securities

Most early tokenization experiments grew out of crypto exchange DNA:

  • Pseudonymous wallets

  • Simple ERC‑20 tokens

  • Light‑touch listing and due diligence

  • Compliance plugged in at the edges, if at all

That model is, at best, marginally acceptable for some RWA wrappers in lighter regimes. It is fundamentally misaligned with securities markets, which start from:

  • Identified, vetted participants (KYC/AML, sanctions).

  • Licensed intermediaries with capital requirements.

  • Strict obligations on disclosure, market abuse, and conflicts of interest.

  • High expectations around system resilience and “settlement finality”.

IOSCO’s 2025 report flags settlement finality and the reliability of underlying DLT systems as a key concern, particularly when multi‑layer architectures (Layer 2, bridges) are involved. (Ledger Insights)

From a platform‑design perspective, this leads to two very different archetypes:

Table 2 – Two Platform Archetypes

Feature
Crypto‑Style Token Platform
Regulated Tokenized‑Securities Infrastructure

User identity

Wallet addresses; KYC optional or only at fiat on‑/off‑ramps.

Fully identified accounts; KYC/AML and sanctions screening embedded.

Asset admission

Lightweight “listing” focused on technical integration.

Formal onboarding: prospectus or exemptions, issuer due diligence, suitability.

Compliance model

Rules enforced off‑chain (T&Cs, blacklists).

Rules enforced both in law and in code (whitelists, jurisdiction filters, lock‑ups).

Settlement asset

Unregulated stablecoins or native tokens.

Central or commercial bank money; potentially tokenized under regulatory frameworks. (Bank for International Settlements)

Regulatory perimeter

Often outside core securities regulation; may fall under VASP rules at best.

Squarely under securities / market‑infrastructure regulation (e.g. DLT Pilot Regime, Swiss DLT venues). (News & warnings | FSMA)

The economic implication is simple: you cannot just “add securities” to a crypto platform. To handle real securities tokenization, you need to design for regulators and market structure from day one.

Where Integrated Infrastructure Comes In

Long‑term, the most interesting question is not “RWA or securities?” but:

Can we build a single, programmable settlement fabric that can support both?

This is essentially the vision behind the BIS’s “unified ledger” – a shared platform where central bank money, bank deposits and tokenized assets coexist, enabling atomic transactions and composable financial contracts. (Bank for International Settlements)

In the private sector, a small number of firms are converging on a similar idea from the opposite side: instead of starting with money and adding assets, they start with tokenized assets and progressively harden their platforms into regulated infrastructure that can handle both RWA representations and record‑of‑reference securities.

Platforms like Stobox, for example, design their technology to support both:

  • RWA structures (where the token is a claim on an SPV or asset) and

  • Full‑fledged digital securities (where the token aims to be the core record under securities law),

using a single protocol layer that embeds legal metadata, jurisdictional constraints, and transfer rules. Their STV3 protocol is one such attempt to make tokens “data‑rich” financial instruments rather than anonymous balances, so the legal nature and constraints of each asset are machine‑readable and enforceable.

The strategic bet behind this approach is clear: if tokenization matures, issuers and investors will want one infrastructure partner that can handle:

  • Today’s hybrid RWA wrappers,

  • Tomorrow’s ledger‑based securities and DLT market infrastructures, and

  • The progressive integration of tokenized money and collateral.

Practical Implications for Issuers, Regulators, and Builders

For issuers

  • Decide what you really need. If your main problem is access and ticket size, RWA tokenization may be enough—for now. If you also care about secondary‑market depth, structured products and long‑term institutional participation, you should be planning for securities tokenization (and DLT‑market infrastructure) as well.

  • Be explicit with investors. Spell out whether the token is a representation (and where the legal title really sits) or the security itself. IOSCO’s core concern is that this is often unclear. (IOSCO)

For regulators and central banks

  • Clarify when the ledger is the law. Switzerland’s ledger‑based securities and the EU’s DLT Pilot are examples of how to give legal certainty to on‑chain records without rewriting everything at once. (EUR-Lex)

  • Think in terms of architectures, not assets. Tokenization is not only about “putting bonds on a chain”; it is about new settlement architectures. The BIS’s unified‑ledger work is a good starting point for assessing systemic implications. (Bank for International Settlements)

For technology builders

  • Design for both worlds. The winning infrastructures will likely be those that can service RWA wrappers and “pure” digital securities within the same control framework.

  • Embed law and data into the token. Whether you borrow ideas from standards like STV3 or develop your own, the token needs to carry enough structured information—about rights, jurisdictions, and constraints—that regulators and institutions can trust what they see on‑chain.

Conclusion: One Word, Two Revolutions

The tokenization story is often told as a single revolution. In practice, it’s at least two:

  • RWA tokenization – an evolutionary upgrade to how claims on real‑world assets are packaged, distributed and financed.

  • Securities tokenization – a more radical rebuild of how markets record, trade, and settle ownership.

They share a technology base, but they live in different legal universes and face different economic frictions. Confusing them leads to misdesigned platforms, disappointed investors, and grumpy regulators.

For now, the smart move is to treat them as complementary but distinct - and to build infrastructure that can speak both languages. If the BIS and IOSCO are even half right, the real prize is not a new asset class but a new settlement fabric: programmable, legally robust, and capable of carrying everything from tokenized mines to central‑bank money.

Tokenization may be just one word. But the markets it will create are at least two, and the infrastructure that wins will be the one that can bridge both.

Key professional sources and further reading

NextThe Missing Markets of Tokenization

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