Law and Ledger is a news segment focusing on crypto legal news, brought to you by Kelman Law – A law firm focused on digital asset commerce.
The following opinion editorial was written by Alex Forehand and Michael Handelsman for Kelman.Law.
A Look at RWA Regulatory Policy
The tokenization of real-world assets (RWAs) has emerged as one of the most promising applications of blockchain technology. By representing traditional assets—such as real estate, commodities, or financial instruments—on-chain, tokenization offers the potential for greater liquidity, fractional ownership, and more efficient settlement. Yet despite its appeal, the legal landscape remains complex, particularly as regulators expand their scrutiny of digital asset markets.
Classification and Regulatory Treatment
In the United States, the classification of tokenized assets depends largely on their underlying characteristics. Tokens representing equities, debt instruments, or income streams are highly likely to be deemed securities under the Howey test. This subjects them to registration requirements with the Securities and Exchange Commission (SEC) unless an exemption applies.
Other types of tokenized assets, such as real estate or art, arguably outside securities law but still trigger oversight from state property, commercial, or commodities regulators. The Commodity Futures Trading Commission (CFTC) has also asserted jurisdiction over certain spot markets and derivatives linked to tokenized commodities. This patchwork framework creates uncertainty for projects seeking to issue or trade RWAs in the United States.
Custody and Transfer Issues
Tokenization raises fundamental questions about ownership rights. For example, if an investor purchases a token representing a share of real estate, does holding the token itself confer enforceable title to the property? In many jurisdictions, property law still requires registration in a government land registry or corporate shareholder ledger. Without clear statutory recognition of blockchain records, token holders may face difficulties enforcing their rights in court.
Similarly, custody of tokenized assets poses unique challenges. Traditional custodians may not be equipped to manage private keys, and reliance on smart contracts introduces risks of coding errors or exploits. The SEC has already highlighted custodial risks in digital asset markets in its custody rule proposals.
Anti-Money Laundering and Compliance Obligations
Projects involving tokenized RWAs must also address anti-money laundering (AML) and know-your-customer (KYC) obligations. The Financial Crimes Enforcement Network (FinCEN) considers many tokenized asset platforms to be money services businesses, triggering registration and compliance duties. Cross-border transactions further complicate compliance, as different jurisdictions impose varying requirements on tokenized securities, commodities, and payments.
Best Practices for Structuring Tokenized RWA Projects
To mitigate legal risk, projects should consider the following strategies:
- Entity Formation and Jurisdiction Selection – Incorporate in jurisdictions with favorable legal frameworks for tokenization, such as Switzerland, Singapore, or the United Arab Emirates, while ensuring compliance with U.S. laws if marketing to U.S. investors.
- Clear Legal Documentation – Draft token issuance documents that specify the relationship between the token and the underlying asset, including rights, restrictions, and dispute resolution mechanisms.
- Third-Party Custodianship – Partner with regulated custodians experienced in both blockchain and traditional asset management.
- Regulatory Engagement – Maintain an open dialogue with regulators, especially when issuing assets that may implicate SEC or CFTC jurisdiction.
Outlook
Tokenization has the potential to transform capital markets, unlocking trillions in previously illiquid assets. However, the legal framework remains unsettled, and regulators are only beginning to address the implications of bringing traditional financial products on-chain. Companies pursuing tokenized RWA projects should proceed cautiously, balancing innovation with compliance, and preparing for heightened scrutiny as the SEC, CFTC, and international bodies refine their approaches.
Kelman PLLC continues to monitor developments in crypto regulation across jurisdictions and is available to advise clients navigating these evolving legal landscapes. For more information or to schedule a consultation, please contact us.
This article originally appeared at Kelman.law.
