October 7, 2025

Tokenization Is Outpacing Regulation: Why Legal Alignment Matters More Than Ever

TL;DR: Why Tokenization Needs Legal Alignment

Want to tokenize on blockchain but unsure how to stay compliant? This is where legal clarity meets blockchain innovation.

●  What’s at stake: If your token introduces features like transferability, it may fall under a different regulatory regime.

Why this matters: Investors, platforms, and businesses need to know when a token becomes a regulated security.

What you’ll learn: How MiFID II, MiCA, and national laws apply to digital assets.

Where it’s evolving: The EU Blockchain Sandbox gives insight into how regulation is catching up with tokenization tech.

Real-world example: Brickken demonstrates how legal rights can be mirrored on-chain while maintaining regulatory boundaries.

Why Is There a Gap Between Blockchain and Regulation?

Imagine digitizing a car title. You don’t change the car, only how its ownership is recorded. That’s how asset tokenization works. But unlike car titles, financial assets come with complex legal baggage.

As blockchain adoption spreads, regulators have had to keep up. The EU introduced frameworks like MiFID II (for financial instruments) and MiCA (for crypto assets). These were built with transferable assets in mind. It means that assets that can be freely bought and sold.

So what happens when you try to tokenize something non-transferable, like private equity shares or revenue-sharing contracts? That’s where the confusion begins.

Tokenization ≠ Legal Reinvention

European regulation starts with a simple principle: Recording an asset on a blockchain doesn’t change its legal nature. If it’s a security off-chain, it’s a security on-chain.

This is core to MiFID II, which still applies when tokenizing stocks, bonds, or other financial instruments. So when a company issues a tokenized bond, it must follow the same rules as a traditional bond issuance.

But many digital assets don’t fit neatly into this box, especially those that are non-transferable.

Transferability: The Legal Fork in the Road

Let’s say you're tokenizing:

  • A private company’s shares (in Spain, called “quotas”)
  • A revenue-sharing agreement

These assets may have economic value, but they cannot be freely transferred under national law. That rules them out as “securities” under MiFID II. At the same time, they don’t qualify as:

  • Utility tokens
  • Asset-referenced tokens
  • E-money tokens (under MiCA)

This creates a legal gap. The challenge is understanding how these non-transferable tokens should be treated under EU law.

The Order of Legal Analysis: MiFID II → MiCA → AIFMD → National Law

The Best Practices Report from the EU Blockchain Sandbox lays out the regulatory logic:

  1. MiFID II: Is the token a financial instrument? If yes, MiFID II applies.
  2. MiCA: If not, is it a utility, ART(Asset-Referenced Token), or EMT (E-Money Token)? Then MiCA applies.
  3. AIFMD: If the asset is part of a collective investment scheme, AIFMD may apply.
  4. National Law: If none of the above apply, classification defaults to local jurisdiction.

This sequence helps platforms and issuers navigate the patchwork of rules.

Digital Twins: Replicating Legal Properties On-Chain

The most important takeaway from Brickken’s work in the sandbox?

If a token is a faithful digital replica - a “digital twin” - of the underlying asset, its legal status remains the same.

However, if tokenization modifies core legal features, such as introducing transferability to an asset that was originally non-transferable, it may lead to reclassification under a different regulatory framework.

Legal and technical alignment is essential for compliant tokenization.


Blockchain infrastructure should support compliance by reflecting the legal characteristics of the asset, such as:

  • Non-transferability
  • Non-fungibility
  • Limited circulation

Smart contracts must be designed to support these features. Introducing new functionalities, like transferability, may shift the asset into a different regulatory category.

Case Study: Brickken in the EU Blockchain Sandbox

Brickken joined the 2nd Cohort of the European Blockchain Regulatory Sandbox to explore a key question. Can tokenized non-transferable assets operate within legal boundaries if their digital version respects existing limitations?

The outcome was positive. Brickken showed that its infrastructure can embed legal constraints, such as non-transferability, into the token’s design.

Regulators recognized that this type of digital twin, which mirrors the legal identity of the off-chain asset, can support legal consistency.

This example supported a broader insight from the Sandbox. Faithful digital replication helps reduce legal uncertainty, especially for assets not clearly covered by MiFID II or MiCA.

Why Structured Legal Dialogue Matters

One major success of the sandbox initiative was enabling open, cross-border dialogue between platforms and regulators.

This led to:

  • Clearer interpretations of MiFID II and MiCA boundaries
  • Recognition of legal nuances in token design
  • Guidance on ensuring compliance without overregulation

As more national-level sandboxes are rolled out, the EU could achieve greater regulatory uniformity. This would be vital for cross-border token markets.

Final Thoughts: Compliance Is Innovation

Legal clarity isn’t just a checkbox. It’s what makes scalable, trustworthy tokenization possible.

For platforms, this means understanding not just the technology, but also the legal DNA of the assets they tokenize. For businesses, it means choosing infrastructure providers who can replicate and enforce legal rights on-chain.

Are you interested in tokenization? Book consultation with our experts.

By
Elisenda Fabrega
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General Counsel