Understanding How US Policies Promote Tokenization

By Chainlink Labs Government Affairs Team

Tokenization is becoming a critical component of financial market development. By converting real-world assets into public blockchain tokens, institutions can improve the efficiency, transparency, and accessibility of value transmission systems.

Across the United States, financial institutions, infrastructure providers, and policymakers are actively exploring how to integrate tokenized assets into the broader market system. The underlying technology of tokenization is also used to support stablecoins, tokenized government bonds, funds, and other financial instruments. The next step is to establish a corresponding regulatory environment to facilitate this transformation.

This article will explore three regulatory challenges facing tokenization in the United States and propose three specific measures policymakers can take to address these challenges.

Three Major Challenges Facing Tokenization in the United States

Challenge 1: How are tokenized assets classified?

The greatest regulatory uncertainty surrounding tokenization is the lack of a unified legal classification standard. US law currently lacks a unified classification standard for digital assets. Consequently, tokenized assets are often classified on a case-by-case basis, lacking a uniform standard. For example, a fiat-backed stablecoin might be classified as a payment instrument, a store of value product, a security, a fund, or a bank deposit. The specific classification depends on the stablecoin's structure and the assessor. Many issuers deliberately avoid paying interest or generating income to avoid classification as a security.

Tokenized Treasury bonds face similar challenges. While U.S. Treasury bonds don't need to be registered with the SEC, packaging them into tokenized products could trigger the Investment Company Act. In other cases, returns or spin-offs could prompt regulators to deem tokens securities. The lack of a clear definition forces many companies to defer to their legal teams and make conservative product design decisions to mitigate regulatory risk. Furthermore, the underlying classification issues remain unresolved, hindering policymakers from developing targeted regulations. Only when U.S. regulators implement unified classification standards for tokenized assets and define these standards at the legal level can the market escape this gray area and truly operate legally. Challenge 2: What interoperability standards should be established? The core tenet of tokenization is that digital assets should flow freely across blockchains, platforms, and financial institutions, as easily and reliably as data on the internet. In theory, this vision has already been realized. Interoperability protocols like Chainlink CCIP enable the transfer of tokenized assets across different blockchains and systems. While infrastructure continues to develop, policy responses have lagged. Currently, the US lacks a clear regulatory framework to explain the compliance obligations that apply when tokenized assets are transferred across systems. Once assets leave their native environments, questions arise regarding custody, trading restrictions, investor protection, and compliance obligations. For example, when tokenized funds are transferred from one blockchain to another, there is sometimes uncertainty as to whether the receiving blockchain must meet the same licensing or regulatory standards. Unsure of regulatory requirements can deter institutions from transferring assets across chains. This uncertainty undermines market confidence, fragments liquidity, and limits widespread adoption of the token market. Challenge Three: What exactly is preventing mainstream users from entering the market? Tokenization is often said to lower barriers to entry, make financial products more trustworthy, and thus enable more people to participate in financial markets. However, today, most US customers face difficulties accessing tokenized assets through existing platforms. A primary reason for this is that regulated tokenized products are typically only available privately or to accredited investors. Furthermore, complex market regulations, such as country-specific remittance regulations, broker-dealer registration requirements, and specialized trust licenses for specific types of trust business or financial activities, make it difficult for most retail-oriented platforms to launch tokenized products at scale. This results in a fragmented market, with institutional investors and high-net-worth individuals enjoying preferential access to the tokenized market while leaving retail customers out in the cold. Without clear regulations for retail clients, many platforms will only operate on a small scale or offshore. Furthermore, there's a gap in public understanding. Many clients don't understand what tokenized assets are, how they differ from traditional products, or the value that features like proof of reserves, automated compliance, or 24/7 liquidity can bring them. Due to a lack of regulatory foundations and viable use cases, public awareness and trust in tokenized assets have been difficult to build. How can US policy clear obstacles to the development of tokenization? Solution 1: Clarify the specific definition of tokenized assets. Much of the legal uncertainty surrounding tokenization stems from the lack of a clear, unified definition. The lack of a unified taxonomy for digital financial instruments forces developers, financial institutions, and regulators to apply 20th-century laws to interpret 21st-century products. This legal ambiguity often leads institutions to adopt a conservative approach to product design, resulting in risk aversion in legal positioning and varying treatment across institutions. The 2025 GENIUS Act, currently pending a Senate vote, has spurred development in this area. This bill establishes a legal framework for fiat-collateralized stablecoins. The bill explicitly states that properly structured stablecoins are not securities, significantly boosting the confidence of issuers and users. Similar clarity is needed for other asset classes, such as tokenized treasuries, mutual funds, and real-world assets. New draft bills will inform the next major bill to transform market structure, hopefully providing more comprehensive coverage of this topic. These proposals do not advocate for forcibly classifying token products as "securities" or "commodities," but rather based on the functional structure and risk profile of digital assets. Clarifying the definition of token assets will provide a stronger legal foundation for the entire industry, allowing regulators to implement more consistent regulations. Solution 2: Develop Interoperability Policy Standards Current US regulations do not explain how obligations such as custody, trading restrictions, or investor protections apply to cross-chain or cross-platform use cases. This creates operational friction for institutions, and regulatory clarity is essential to enable smooth cross-network operations. Many institutions store assets in closed environments, where it is easier to manage legal liabilities. The GENIUS Act took a significant step forward by guiding regulators to develop interoperability standards for payment stablecoins. However, these standards remain incomplete. Standards are also needed for other tokenized assets, such as government bonds, mutual funds, and real-world assets. Policymakers can bridge this gap by establishing regulatory frameworks that synchronize compliance obligations and the transfer of assets across systems. This can include unified policy development, joint guidance for institutions, or clearly structured pilot programs that allow companies to explore interoperability use cases within a clear regulatory framework. With a clear set of interoperability standards, companies can confidently develop real-world use cases, confident that tokenized assets can be transferred across systems not only technically but also legally. Solution Three: Laying the Groundwork for Mainstream Access to Tokenized Assets Enabling more mainstream users to access tokenized assets requires clearer rules governing how these products can be marketed to the public in a safe and compliant manner. While public interest in tokenized assets continues to grow, many institutions remain constrained by regulatory frameworks that were not originally designed with tokenized finance in mind. Policymakers now have an opportunity to lower these barriers by developing a new framework that allows for greater retail participation without compromising trust and oversight. Possible steps include improving the licensing pathway for tokenized product platforms, clarifying generally applicable asset classes, and establishing consistent standards for risk disclosure, custody, and investor protection. These changes will bolster the confidence of issuers to offer tokenized assets to the public and help consumers better understand these products. A combination of public education, transparency, and responsible distribution mechanisms will ensure that tokenization benefits not only institutions but also everyday consumers. In Conclusion: Tokenization presents a once-in-a-decade opportunity that will modernize financial markets. The technology is mature, and institutional demand is real. Now is the time to establish a regulatory environment that will foster market development and growth. The United States does not need to build a system from scratch; instead, it needs to prioritize three key areas: clearly defining regulatory responsibilities; establishing a clear legal definition of digital assets; and establishing a viable path to market for tokenized products. The GENIUS Act, subsequent market structure bills, and the Tokenization Reporting Act all point in the right direction, and now we need to act.

With the right legal framework, the United States can establish a trusted, secure, and scalable token asset market and lead the global token asset development.