Digital twins: Steps to take before Token creation and Classification

TL;DR

Want to tokenize assets? Start here:

• What to check: Decide if the asset is a financial instrument, a crypto-asset under MiCAR, or another digital asset.
• Role of digital twins: If a token mirrors the real world asset, classification is easier. If tokenization adds features like free transferability, stricter finance regulations may apply.
• Key steps: Define the asset, assess transferability and fungibility, identify the issuer, and look for possible MiCAR exemptions.
• Why it matters: Clear token legal classification and compliance from the start make tokenization scalable and legally sound.

Setting the Context: The EU Sandbox and Brickken’s Role

The European Blockchain Sandbox is an initiative from the European Commission that connects blockchain innovators with regulators. Its purpose is to test new models in a safe setting and clarify how finance regulations and digital assets can coexist.

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Only 20 projects are selected per year. In the 2nd cohort, Brickken presented a case on company quotas. Quotas are non-listed equity interests that give utility rights rather than capital contributions. They do not fit into existing categories under MiFID II or MiCAR, which made them a useful test case.

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Our work explored how a digital twin of such assets could be structured for compliance and aligned with EU financial law.

Step 1: Define the Real World Asset

Tokenization starts with precision.

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Ask: What are we tokenizing?

• If it is a financial instrument such as shares or bonds, it falls under MiFID II.
• If it is not, check if it qualifies as a crypto-asset under MiCAR.
• If it is not, evaluate whether it could be treated as an investment fund under AIFMD.
• If none of these apply, the fallback is national law.

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This legal mapping must come before any smart contract deployment or technical build.

Step 2: Understand the Role of Digital Twins

A digital twin is a tokenized version of a real-world asset with the same legal rights and obligations. If the underlying asset is regulated, the digital twin usually follows the same classification. If the original is unregulated, the twin is normally outside regulation as well.

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The risk appears when tokenization changes the asset’s features. For example, company quotas in a private business often cannot be freely traded. If you tokenize these quotas and create a token that is transferable without restrictions, the asset now behaves like a regulated financial instrument. That change can move the token under MiFID II or MiCAR, even though the original quotas were not regulated.

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This is why digital twins can simplify compliance but also introduce unexpected obligations.

Step 3: Apply the Four Key Criteria

When analyzing a token’s legal status, four questions matter most:

• Transferability: Can the token be exchanged beyond the issuer?
• Fungibility: Is each token interchangeable, or does each represent unique rights?
• Legal structure: What rights does the token provide, such as voting, equity, or service access?
• Technical design: How is the token created, controlled, and enforced through smart contracts?

These criteria are central to token legal classification and determine if a token is treated as a regulated digital asset.

Step 4: Identify the Issuer

The issuer is the entity that holds responsibility for the rights granted by the token. It is usually the company behind the asset itself, not the technology provider or developer. Clarity here matters because regulators will hold the issuer accountable for compliance under finance regulations.

Step 5: Explore MiCAR Exemptions

Even if tokens qualify as crypto-assets under MiCAR, exemptions may apply.
These include:

• Tokens distributed for free.
• Utility tokens linked to services that already exist.
• Small-scale or limited offerings.
• Tokens launched through a white-label provider that assumes compliance duties.

These carve-outs can reduce complexity and help businesses tokenize faster without breaking financial law.

Why This Matters for Businesses

Tokenization is more than a technical upgrade. It is a compliance journey. Skipping legal checks can leave businesses with digital assets that cannot be traded or recognized under EU finance regulations.

The EU Sandbox showed how structured dialogue helps avoid this. Even complex cases like company quotas can be managed with proper planning. The message for businesses is clear: compliance is not a barrier to tokenization. It is the foundation that gives tokenized assets value.

The Takeaway

If you are preparing to tokenize assets, follow these five steps:

1. Define the asset and check if it is a financial instrument.
2. Understand the role of digital twins and where they may trigger regulation.
3. Apply the four criteria: transferability, fungibility, rights, and design.
4. Identify the issuer clearly.
5. Check for MiCAR exemptions.

This framework ensures that your tokens meet finance regulations, align with compliance standards, and scale as valid digital assets in Europe.

Next step

If your business wants to explore tokenization with confidence, start with legal clarity.

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Brickken helps companies design compliant tokens based on real world assets that work under EU financial law and scale globally.

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Book consultation with our experts