Former SEC Counsel: What It Really Takes to Make Tokenized Real‑World Assets Compliant

A swift change in tone that could open the door — if issuers actually follow the rules

Last week a former senior lawyer at the Securities and Exchange Commission described a clear path for tokenized real‑world assets (RWAs) to sit outside securities regulation. That is a big deal. A shift in the regulator’s public posture matters because it lowers one of the largest legal roadblocks that has kept banks, funds and big financial firms from moving serious capital onto blockchains.

The lawyer’s message was practical: regulators will look at the economics and mechanics of a token, not just the marketing. If a token gives holders direct, enforceable ownership of an asset, with no expectation of profit driven by a third party’s efforts, it may not be a security. That offers a realistic blueprint for compliant RWA issuance — but only if projects follow strict structural, disclosure and operational rules. Put simply: this is an opportunity, not a green light to copy‑paste existing high‑yield crypto models onto real loans and bonds.

Why the SEC’s softer stance changes the playing field — and what legal tests still matter

The counsel’s comments reveal two important shifts. First, regulators seem more willing to analyze tokens case‑by‑case, focusing on the economic realities behind the token rather than treating every token as a potential investment contract. Second, they are signalling that certain token designs can avoid securities treatment if they meet long‑standing legal tests.

In plain language: the law asks whether buyers are investing money with an expectation of profit that depends largely on others. If you strip away promises of managed returns and make the token a clear ticket to an underlying asset, regulators are less likely to view it as a securities sale. That threshold — expectations of profit tied to third‑party efforts — remains the key test. But applying it to blockchain tokens brings tricky facts: how payments flow, who controls the asset, and what rights token holders actually hold.

Where most RWA plans still fall short: jurisdiction, ownership and yield traps

There are three recurring weak spots that trip up many RWA blueprints.

First, jurisdiction and governing law. Tokenized ownership is often meant to be global, but the contract that grants rights to holders must be enforceable in a known legal system. If ownership depends on a foreign law that is weak or unclear about digital transfers, U.S. regulators and courts will be uncomfortable.

Second, the way ownership is structured. Many projects say token holders own a slice of a loan or lease pool, but in practice holders have a contractual claim against a trustee or a platform. That means economic outcomes depend on the platform’s actions — which looks a lot like an investment managed by others. True compliance requires that token holders have direct, enforceable rights, not mere promises from intermediaries.

Third, yield and structuring. High, market‑beating yields attract the label of an investment. If a token’s returns are packaged and marketed as a way to earn passive income from an asset manager’s skill, regulators will scrutinize it as a security. Conservative yields tied directly to cash flows from specific assets — with limited discretion for managers — are easier to defend.

Operational fixes that actually make tokenized RWAs pass muster

The former counsel outlined practical fixes that issuers can implement now. They are straightforward but strict.

Start with true asset linkage. Documentation must show that token holders directly own an identifiable asset or a proportionate claim that is legally enforceable. That means clear transfer records, a legal mechanism for taking possession, and reliable dispute remedies in a named court.

Improve custody and transfer mechanics. Tokens should represent records of title that are backed by a custodian or registrar governed by traditional law. Where a blockchain ledger records transfers, an off‑chain legal recognition must exist so courts can enforce rights if the code fails.

Limit manager discretion. Avoid structures where a manager’s active decisions are the main source of returns. Use fixed income streams or pre‑set waterfall payments instead of promised alpha from active management. When managers do act, make their role administrative and transparent.

Disclose and report like legacy finance. Issuers should adopt the kind of disclosure investors expect in bond or loan markets — regular statements of asset performance, default rates, and counterparty exposures. Where distribution reaches U.S. retail buyers, use registered intermediaries or tailor offerings to accredited or institutional investors.

Finally, restrict tradability where necessary. Some compliant models use limited transferability or staged liquidity to prevent speculative markets that could trigger securities concerns. That tradeoff reduces immediate market depth but strengthens a legal defense.

What crypto investors should watch: risks, opportunities and next moves

For investors focused on crypto, this is mixed news. On the positive side, a credible path to compliance could unlock large pools of capital and safer yield opportunities built on real assets. That would be a structural win for the industry: better linkages to banking and fixed income could bring stability and new product demand.

On the negative side, the details matter. Many current RWA plays are built for quick yield and liquidity, not for the heavy documentation and custody practices regulators want. Those projects face a real risk of enforcement or forced restructuring if they can’t demonstrate clear ownership and limited manager discretion.

My view: this is a constructive step, but not a guarantee. Investors should expect a two‑track market. One track will be low‑yield, highly documented tokenized debt and short‑term government or quasi‑government instruments that are likely to withstand scrutiny. The other will be higher‑yield, loosely structured offerings that carry significant regulatory and operational risk.

For traders and allocators, the near‑term trade is clarity, not chase. Favor tokens tied to transparent cash flows, clear legal ownership, and custodial backstops. Treat high yields on poorly documented RWAs as an implicit tax for legal and enforcement risk. Over the next year, watch which issuers adopt the strict fixes the former counsel outlined — those are the ones that can scale without getting sued.