Tokenised Securities: The Legal Reality Behind Ownership Claims
As blockchain-based finance continues to evolve, the promise of tokenised real-world assets has emerged as a transformative narrative. Advocates argue that by converting traditional financial assets into tokens—digital representations recorded on a distributed ledger—we can unlock new efficiencies in settlement, accessibility, and liquidity. From UK Gilts, public equities and real estate to private funds and corporate bonds, nearly every asset class is being reimagined as “tokenisable”. But despite this wave of innovation, a crucial question remains underexplored: what does holding a token actually entitle you to own?
Tokens ≠ Legal Title
The prevailing narrative in the industry often implies that holding a token is equivalent to owning the underlying asset. However, the legal truth is far more complex. In nearly all major jurisdictions—including the United Kingdom, European Union, United States, and Singapore—blockchain tokens today function primarily as representations of rights or interests, not as instruments of legal title to the referenced assets. Understanding this distinction is critical—not only for legal compliance, but also for investor protection, platform credibility, and the long-term institutional adoption of tokenised products.
Legal Foundations Define Tokenisability
The key to assessing tokenised assets lies in understanding the legal nature of the underlying instrument. If an asset—such as a listed share, a government bond, or a land title—has already been issued under a conventional legal framework, then that framework governs how ownership is recognised and transferred. These structures typically depend on central securities depositories, registrars, or public registers to define and enforce legal title.
Under current laws, creating a token that “represents” an existing asset does not in itself confer legal ownership, unless the jurisdiction in question explicitly recognises a blockchain ledger as an authoritative legal record. Without such statutory recognition, transferring the token does not equate to a legal transfer of ownership. At best, the token becomes a symbolic entry—a digital reflection of the asset, linked via a custodial or contractual structure rather than by law.
Repackaging: The Only Legally Viable Model
To work around these limitations, most tokenised offerings are built on repackaging existing assets into new legal structures—such as exchange-traded products (ETPs), special purpose vehicles (SPVs), or regulated funds—and then tokenising ownership in that wrapper. This model is not inherently flawed; in fact, it underpins many of the tokenised Treasury, real estate, and bond products currently available. However, it is vital to recognise that the token represents a beneficial or contractual interest in the wrapper—not the underlying asset itself.
Take, for instance, Ondo Finance’s USDY token. Marketed as a tokenised U.S. Treasury product, it is in reality a digital debt instrument issued by an entity that holds Treasuries and bank deposits. Token holders have a claim on that entity, which pledges that the tokens are overcollateralised with short-term government debt. Crucially, USDY holders do not directly own the Treasury bills. Their claim is indirect, contractual, and enforceable only against the issuer—not the U.S. government or any official securities infrastructure.
Direct Blockchain Ownership Is Still Elusive
The vision that blockchain tokens could directly replace traditional legal records of ownership—where the token becomes the asset—is appealing, but legally ungrounded in most jurisdictions. For that to happen, regulatory and legal systems must treat blockchain ledgers as valid legal registers. This is currently not the case in most markets.
In the UK and EU, for instance, legal title to shares remains tied to central registers held by issuers or custodians. Land ownership relies on updates to national land registries. No matter how advanced the blockchain solution, the transfer of a token alone does not equate to legal transfer under current law.
Only a few jurisdictions—such as Delaware (for corporate shares), Germany (for electronic bonds and crypto shares), and Luxembourg (for certain fund units)—have adopted legislation recognising blockchain as a legal register. Even then, such frameworks are limited to newly issued instruments and generally exclude legacy securities and property titles.
Tokenisation ≠ Decentralisation of Ownership
Because of these legal constraints, nearly all tokenised assets currently in circulation remain intermediated. A platform, custodian, or trust holds the actual asset, and the token is a digital instrument—an IOU representing certain financial rights. These may include rights to redemption, interest, or principal repayment, but rarely include full legal title to the asset.
This creates a crucial distinction: operational tokenisation versus ownership tokenisation. The former describes the use of blockchain to streamline processes—settlement, compliance, and efficiency. The latter implies a legal paradigm shift in how ownership is recorded and enforced. While progress has been made in operational tokenisation, we remain far from a world where ownership itself is legally decentralised.
Legal Momentum Is Building
Encouragingly, regulators and lawmakers are beginning to pave the way for broader adoption of tokenised legal ownership—especially for new issues. In the European Union, the DLT Pilot Regime allows regulated infrastructures to issue and settle tokenised securities under defined exemptions. The UK’s Digital Securities Sandbox facilitates live experimentation with blockchain-based financial systems. Singapore’s Project Guardian, led by the Monetary Authority of Singapore, is piloting tokenised bonds and bank-issued digital assets. In the U.S., Delaware law enables blockchain-based share ledgers, while initiatives such as the DTCC’s Project Ion hint at future integration of distributed ledger technology into mainstream financial infrastructure.
However, these initiatives remain highly conditional and narrowly scoped. They apply primarily to new digital-native instruments, operating within tightly controlled sandboxes or regulatory exemptions. They do not override legacy systems, nor do they eliminate the legal requirement for traditional registries or custodial infrastructure.
What This Means for the Market
For investors, developers, and institutions involved in the tokenised securities space, the implications are clear:
Tokens do not currently confer legal ownership of most real-world assets, unless issued under a native and compliant DLT legal framework.
The relationship between a token and its underlying asset is typically contractual, mediated by a trust, fund, or regulated custodian.
Any product offering tokenised access to real assets must clearly disclose whether legal ownership is actually transferred.
Legal frameworks are evolving, but change will be incremental and forward-looking, not retroactive.
Conclusion
Tokenisation represents a major breakthrough in financial operations, but its role as a vehicle for true legal ownership remains limited. Until legal and regulatory infrastructure formally accepts blockchain as the definitive register of ownership, tokens will remain sophisticated instruments of representation, not substitutes for the real thing.
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