Understanding tokenized securities as regulated assets
Alex Zozos, General Counsel at Superstate and former SEC official, makes a straightforward point: tokenized securities are, well, securities. I think this might seem obvious to some, but in the current regulatory environment, it’s worth stating clearly. Most jurisdictions maintain the legal characteristics of underlying assets when they’re tokenized, according to Zozos. Commissioner Peirce’s recent statements seem to reinforce this consistent classification approach.
Perhaps what’s more interesting is how this basic recognition shapes everything else. When you start from that foundation, the regulatory questions become more about implementation than about whether these assets belong in existing frameworks at all.
The SEC’s dual role in market oversight
Zozos describes the SEC’s work in two parts: enforcement and policy development. Right now, he suggests we’re still at “step zero” when it comes to tackling the difficult issues around on-chain trading. That’s a pretty honest assessment from someone who’s worked on both sides of the regulatory fence.
But there’s potential for change. Zozos sees room for a more receptive SEC in the future, one that might approach these questions differently as the technology matures and market practices become clearer.
How tokenization changes financial systems
The technical improvements are real. Tokenization brings speed and efficiency simply by using newer technology. It also enables self-custody, which creates more options for investors. Zozos points out that decentralized systems could help prevent some types of systemic failures that we’ve seen in traditional finance.
Transfer agents face interesting questions too. Their roles are evolving to track ownership more effectively in a tokenized world. Some might wonder if tokenization poses existential questions for these traditional intermediaries. Galaxy’s work in creating regulatory perimeters for eligible holders shows one approach to this transition.
Blockchain’s broader impact and regulatory rethinking
Blockchain technology updates how we handle networks of value, whether that’s payments or securities. The DTC’s involvement in tokenization indicates a significant shift in how established financial infrastructure adapts. Regulatory sandboxes allow for experimentation, though they come with their own risks.
Zozos suggests we’re seeing a broader rethinking of regulation through what he calls “Project crypto.” The lines between crypto and traditional markets will likely blur over time. Broker-dealer regulations exist to control risks from conflicts of interest, but self-custody reduces the need for traditional brokers in some cases.
Wallets that act like brokers should probably be treated as brokers, Zozos notes. That seems like a practical approach, though implementation details will matter.
Looking ahead at market evolution
New technologies don’t necessarily displace older systems immediately. There will be competition and increased investor choice. The market will figure out which tokenization models work best in practice. The SEC’s role, in Zozos’s view, should be to create conditions for fair competition.
Regulatory arbitrage—navigating different jurisdictions—is already happening. Some companies avoid U.S. regulations through jurisdiction choices. Zozos predicts Citadel will become a major player arbitraging between traditional and on-chain markets.
The SEC’s regulatory framework will influence innovation in tokenization, but perhaps not determine it completely. There’s room for different approaches to emerge, and the market will likely test multiple models before settling on what works best for different use cases.
What strikes me about Zozos’s perspective is its practicality. He’s not predicting revolution or immediate transformation. Instead, he’s describing an evolution where existing regulatory frameworks adapt to new technology, and where market participants find ways to work within—and sometimes around—those frameworks.
