“Enchanting, but Not Magical”
Tokenized Securities Are *Checks Notes* Securities
If you are here, reading this, you likely agree that blockchain technology has opened many new possibilities for how people interact with one another. If you have been here for a long time, you are also aware that people tend to overstate what can or cannot be done on-chain (or at least overstate the implication of things being done this way). So, the following should not be too surprising to anyone who has been paying attention.
In a July 9, 2025, statement titled “Enchanting, but Not Magical: A Statement on the Tokenization of Securities,” SEC Commissioner Hester Peirce acknowledged the promise of on-chain assets for capital formation and collateralization. However, she delivered a clear reminder that tokenization does not alchemize a security into something exempt from regulation. In her words, “Tokenized securities are still securities” and those dealing in them “must consider—and adhere to—the federal securities laws” just as with traditional instruments. In short, blockchain may be enchanting, but it “does not have magical abilities to transform the nature of the underlying asset”.
Existing law already accommodates tokenized stocks or bonds. If a company tokenizes its own shares (essentially issuing digital stock certificates on a blockchain), the shares are still securities. Why would they be anything else? Investors still have the right to proper disclosure, registration, and trading protections (and restrictions).
Securities laws are – in the view of the SEC - technology-neutral. Depending on its setup, a tokenized stock could be deemed a “receipt for a security,” which the securities laws have always treated as a security in its own right, or if the token doesn’t confer actual ownership rights (for example, a token mirroring a stock’s price without giving the holder any stock or voting rights), it might be treated as a “security-based swap,” which brings its own regulatory limitations (notably, such swaps “cannot be traded off exchange by retail persons”). In other words, wrapping a share in cryptography doesn’t change its legal character – the same requirements apply on-chain as off-chain. As Peirce succinctly puts it, “while blockchain-based tokenization is new, the process of issuing an instrument representing a security is not. The same legal requirements apply to on- and off-chain versions of these instruments.”
Not a Surprise, But Still Significant
As mentioned above, this statement is not surprising to anyone who has been paying attention. The SEC has repeatedly enforced a substance over form principle in crypto contexts. For example, when the SEC charged Abra for offering synthetic exposure to U.S. stocks through blockchain-based contracts without proper registration. Abra’s app let users bet on U.S.-listed equities via tokens that mirrored stock prices, effectively creating unregistered swaps. The SEC’s order in that case found these contracts were indeed security-based swaps subject to the securities laws, and it penalized the company for trying to bypass exchange and investor protection rules. As one SEC enforcement official warned, “businesses that structure and effect security-based swaps may not evade the federal securities laws merely by transacting primarily with non-U.S. retail investors and setting up a foreign entity ... while conducting crucial parts of their business in the United States.” In other words, calling something a “token” or moving it offshore doesn’t put it beyond the SEC’s reach. The economic reality governs, not the terminology or technology – a point the SEC underscored when it noted that it is “governed by economic realities, not cosmetic labels.”
Given this backdrop, Peirce’s assertion that tokenized securities are still subject to securities laws seems almost obvious. But what makes this statement notable is not a new legal theory, but the messenger and the timing. Commissioner Peirce (affectionately referred to as “CryptoMom” by those who know) chose to publish a public statement on the SEC’s website affirming this position on tokenization, signaling to the market that the Staff is actively engaged on the topic of tokenization – not only behind closed doors, but in public-facing guidance. It’s a timely assurance, coming on the heels of rising industry efforts to tokenize real-world assets and even Congressional attention.
(In fact, these comments came the same day as a Senate Banking Committee hearing on digital assets market structure, where lawmakers raised concerns about whether blockchain-based stocks might circumvent regulatory safeguards.)
The message from Peirce is clear: there’s no regulatory arbitrage loophole simply by using a blockchain. For crypto founders, this is a reminder that any plan to tokenize equity or debt in the U.S. must fit into the existing legal framework that has been in place for decades.
Balancing Innovation and Compliance: A Path Forward
Commissioner Peirce’s concluding advice in the July 9 statement strikes an encouraging tone. She urges market participants who are structuring tokenization projects to proactively engage with the Staff as they navigate regulatory requirements. Rather than launching first and begging forgiveness later, companies are nudged to seek guidance or no-action relief upfront. Peirce even provides a reference (via footnote) to the SEC’s Crypto innovation contact page, underlining that the agency has set up channels to field questions on crypto and tokenized deals. She acknowledges that “when unique aspects of a technology warrant changes to existing rules or where regulatory requirements are outdated or unnecessary, we stand ready to work with market participants to craft appropriate exemptions and modernize rules.”
So, while today’s statement may be succinct and bordering on obvious, it carries weight if you take the time to think about not just the what, but the when and why. It confirms that tokenized securities fit within the existing U.S. securities law framework – a framework that, while adaptable, will apply in full force. The statement’s significance lies in reaffirming a long-standing principle at a moment when the industry is actively exploring tokenization of everything from equities to Treasurys. It serves as both a reality check and a reassurance: a reality check that no, tokenization isn’t a magic wand to escape regulation, and a reassurance that yes, tokenization can be pursued within the law, and the SEC is paying attention in a constructive way.
What kind of lawyer would I be without a disclaimer?
Everything I post here constitutes my own thoughts, should only be used for informational purposes, and does not constitute legal advice or establish a client-attorney relationship (though I am happy to discuss if there is something I can help you with). I can be reached via email at dlopezkurtz@crokefairchild.com, on telegram @davidlopezkurtz, on twitter @lopezkurtz, and on LinkedIn here.