Tokenization Is Not Securitization: Getting the Language Right Matters for Regulation
The financial industry has defaulted to securitization frameworks when discussing tokenized assets. That conceptual shortcut is creating regulatory mismatches that will take years to untangle.
When lawyers and regulators first encountered tokenized assets, the conceptual grab for the nearest analogy was understandable: securitization. Both involve representing economic interests in underlying assets through tradeable instruments. Both require disclosure frameworks, rating considerations, and investor suitability assessments. The analogy is not wrong — it is just dangerously incomplete.
Securitization is a bankruptcy-remote structure in which assets are transferred to a special purpose vehicle, which then issues notes or certificates to investors. The SPV is the legal owner of the assets. Investors own claims on the SPV. The entire architecture is designed to isolate the assets from the originator's balance sheet and from the originator's insolvency risk.
Tokenization, as currently practiced in the RWA market, is often much simpler than this. In many structures, the token represents a direct ownership interest in the underlying asset — a bond, a treasury bill, a fund share — held by a custodian who records ownership on-chain rather than in a traditional registry. There is no SPV. There is no tranching. The token is simply a different recordkeeping mechanism for a conventional financial instrument.
The regulatory problem arises when frameworks designed for securitization are applied wholesale to tokenization. Reserve requirements calibrated to SPV-held assets make no sense for direct-custody structures. Prospectus disclosure requirements designed for multi-tranche structured products are disproportionate for a tokenized government bond.
MiCA partially addresses this by creating a separate token classification that does not map onto existing securities law, but the boundary between MiCA-regulated tokens and MiFID II-regulated securities remains contested. ESMA has acknowledged the issue in its Q&A documentation, but definitive guidance is still outstanding. Until the conceptual vocabulary is settled, regulatory uncertainty will continue to create compliance costs that slow the market's development.