SEC Reaffirms: The Law of Talos Behind Tokenized Securities Regulation

According to recent reporting from DL News, the U.S. Securities and Exchange Commission has issued comprehensive guidance that underscores a fundamental regulatory principle: the law of talos—where the essence and substance of an instrument supersede its technical implementation. This principle directly applies to tokenized securities, demonstrating that moving assets onto blockchain infrastructure does not exempt them from existing securities law requirements.

The SEC’s position is unambiguous: whether securities are created on-chain or managed through traditional off-chain systems, they remain subject to the complete framework of federal securities regulations. This encompasses registration requirements, mandatory information disclosure, ongoing reporting obligations, and anti-fraud protections. The regulatory body emphasizes that tokenization represents merely a shift in the method of issuance and record-keeping—a technological evolution that does not alter an asset’s fundamental legal character.

Technology Takes a Backseat: How the Law of Talos Shapes Securities Classification

For issuers and asset management firms, this guidance crystallizes compliance expectations and reduces uncertainty around digital asset offerings. The law of talos principle clarifies that technical form cannot override substantive legal analysis. The SEC further distinguishes between two categories of tokenized securities: those directly issued and supported by the original security issuer, and those created and backed by third-party institutions.

Critically, even when third-party-issued tokens lack direct equity rights, voting privileges, or information access to holders, they remain subject to securities law if they embody securities characteristics. This broad interpretation ensures no tokenized product can escape regulatory scrutiny through structural loopholes.

From Theory to Practice: Global Implementation and Market Gaps

The practical application of these principles is already underway in international markets. Robinhood, for instance, has launched tokenized versions of over 2,000 U.S. stocks within Europe, operating under the MiCA (Markets in Crypto-Assets Regulation) framework. This real-world implementation validates that tokenized securities can function within regulatory guardrails—yet a critical gap remains.

The SEC has not yet articulated a clear regulatory pathway for secondary market trading of these tokenized securities. Industry analysts contend that the SEC’s guidance helps mitigate compliance ambiguity, but widespread U.S. market adoption hinges on legislative progression, particularly through bills like the Clarity Act. Recent delays in legislative advancement, driven by ongoing disagreements within the industry, suggest that meaningful market expansion may await further political alignment on the law of talos as it applies to digital assets.