Tokenized equity exists in a regulatory grey zone because current securities laws don’t adequately address blockchain-native features. Attorneys note that tokenized stocks may not confer identical legal rights as traditional shares, creating investor protection concerns. Regulators struggle to classify tokens that represent equity but function as programmable assets on decentralized networks.
The core issue involves reconciling traditional shareholder rights with blockchain’s global, 24/7 trading environment. Jurisdictional conflicts arise when tokenized stocks trade across borders without intermediaries. Regulators also question how corporate actions like dividends or voting would function in tokenized structures without centralized custodians.
These uncertainties have slowed institutional adoption despite clear market demand. Resolution requires either new legislation or significant reinterpretation of existing frameworks like the Howey Test. Market participants anticipate guidance from initiatives like the SEC’s tokenization working groups, but progress remains incremental as regulators balance innovation with investor safeguards.
