October 25, 2025
September 28, 2026
Author: JoĂŁo Lages
A security token is not a product category with one standard risk profile. It is a digital representation of a legal claim: a bond, a fund interest, a share or another financial instrument. The decisive question is therefore not which blockchain the token uses, but what the holder can enforce, against whom, and through which register, payment and settlement arrangements.
This guide examines three live market examples and two illustrative transaction structures. The examples show how tokenization changes issuance and administration while leaving the underlying economics—and most of the regulatory work—recognisably within securities markets. For issuers and investment professionals, the practical task is to select an instrument first and design the token around its rights, lifecycle and distribution constraints.
In April 2021, the European Investment Bank launched a €100 million, two-year digital bond on a public blockchain with Goldman Sachs, Santander and Société Générale. The EIB described DLT as the registration and settlement infrastructure; the payment from the underwriters to the issuer was represented on-chain using an experimental central-bank digital currency supplied through a Banque de France collaboration.
The case is useful because it exposes the components that marketing shorthand often collapses. The investor still acquired a bond: a dated debt claim with principal and interest owed by the EIB. The tokenized layer changed how the instrument was registered and settled. It did not turn the bond into a bearer cryptoasset, remove the underwriting banks or make credit analysis irrelevant.
For an issuer, the design decision is whether DLT will be the legally authoritative securities register, a synchronized operational record or only a distribution interface. A second decision concerns the cash leg. Delivery-versus-payment is strongest when the security and payment can settle with coordinated finality. If fiat payments remain on conventional bank rails, the transaction needs procedures for matching, cut-off times, failed settlement and reconciliation across systems.
Siemens issued a €60 million, one-year digital bond in February 2023 under Germany’s Electronic Securities Act. According to the company’s issuance announcement, the security used a public blockchain, did not require a paper-based global certificate and was sold directly to investors. Payment, however, was made through conventional bank accounts.
This is not a flaw in the structure; it is a precise example of selective digitization. Germany’s electronic-securities framework gave the registered electronic instrument legal recognition, while the cash leg continued to use established payment infrastructure. The arrangement reduced dependence on some traditional issuance artefacts without pretending that every function had moved on-chain.
The operating implication is important. A corporate issuer considering the same route must map responsibility for the electronic register, investor onboarding, order allocation, payment confirmation, custody or wallet access, coupon processing, tax documentation and maturity redemption. Removing a global certificate does not remove those functions. It reallocates them among the issuer, registrar, paying agent, technology provider and regulated distributors.
It also changes the failure scenarios that must be tested. If a wallet is compromised, a private key is lost or an investor becomes ineligible, the legal documentation and register rules need a controlled correction, freeze or reissuance process. “Immutable” transaction history is not an answer to a legally valid court order or a mistaken corporate action.
BlackRock launched the USD Institutional Digital Liquidity Fund, known as BUIDL, in March 2024. The fund was issued on a public blockchain and made available to qualified investors through Securitize. The launch description identifies a tokenized fund interest backed by a portfolio intended to hold cash, US Treasury bills and repurchase agreements.
The distinction between the token and the portfolio is fundamental. A holder owns an interest in the fund subject to its governing documents, service-provider arrangements, subscription and redemption rules. The holder does not acquire title to a particular Treasury bill visible through a wallet. Portfolio management, valuation, transfer agency, custody, sanctions controls and investor eligibility remain institutional functions even when ownership is represented on-chain.
BUIDL therefore provides a better model for analysing tokenized funds than a simple “one token equals one asset” narrative. The token can support programmable transfers and integration with digital-asset infrastructure, but the fund’s net asset value, income allocation, redemption capacity and counterparty exposures are determined by the legal vehicle and its operations. Due diligence should cover the fund documents and providers before examining token-contract features.
Consider an illustrative financing in which an SPV owns a loan secured against an income-producing property. Investors subscribe for notes issued by the SPV. Each token represents a specified principal amount of those notes; it does not represent direct title to a room, a square metre of land or the building itself.
The cash mechanics could route borrower payments into a controlled collection account. From there, the contractual waterfall pays taxes and senior property costs where applicable, servicing fees, note interest, scheduled principal and finally residual amounts. The token system can maintain the eligible-holder list, record assignments and calculate entitlements, but it should not be the only source of truth for bank cash receipts.
Two diligence points dominate this structure. First, the security package must be created and perfected under the law governing the mortgage, receivables and SPV shares. A blockchain entry cannot substitute for land-registry filings, account-control arrangements or other perfection steps. Second, workout authority must be explicit. Investors need to know who may waive a covenant, replace the servicer, enforce collateral, approve a sale or restructure the debt.
This is where a white-label investment platform can be relevant: as issuance, onboarding, investor-record and reporting infrastructure around a legally defined instrument. It does not itself determine whether the note is valid, the mortgage is enforceable or the distribution route is permitted.
A startup can digitize direct shares only if company law, the articles of association and the applicable shareholder register support the intended form of ownership. The token must align with voting, dividend, information, pre-emption, drag-along and transfer-approval provisions. If the statutory register or cap table prevails over the blockchain record, the synchronization rule and correction process must be contractual and operationally tested.
An alternative is to place the startup shares in an SPV and issue tokenized interests in that vehicle. This can simplify the startup’s cap table, but it changes the investor’s claim. The token holder owns an SPV interest, not a direct share in the operating company. Fees, SPV governance, reserved matters, follow-on funding, exercise of voting rights and distribution waterfalls become part of the investment analysis.
The choice between direct equity and an SPV wrapper is therefore substantive, not technical. Direct shares may preserve clearer shareholder rights but create company-law and cap-table complexity. An SPV can centralise administration while introducing an extra entity, governance layer and insolvency analysis. For a deeper treatment of rights and market roles, see Lympid’s guide to security-token architecture.
None of the examples supports the claim that tokenization automatically creates liquidity. A transferable token still needs willing buyers, reliable disclosure, price formation, compatible custody and a lawful venue or bilateral transfer process. Private instruments can remain illiquid even when transfers settle quickly.
They also do not show that public blockchains eliminate intermediaries. The roles may change, but regulated distribution, identity verification, register administration, custody, payment, valuation and corporate-action functions still require accountable parties. The useful question is which party performs each function and how records are reconciled—not whether an intermediary appears in the marketing diagram.
Finally, tokenization does not change the instrument’s classification by label. In the EU, the analysis begins with the rights and economic substance. ESMA’s classification guidelines explain the conditions for treating cryptoassets as financial instruments. Where a token is a transferable security or another MiFID II instrument, securities-market rules apply; MiCA is not an alternative route for avoiding them.
For an EU offering, the issuer must determine the instrument classification, issuer jurisdiction, target investors and distribution method before coding transfer rules. MiFID II governs investment services and activities around financial instruments. The Prospectus Regulation may require an approved prospectus for a public offer or admission to trading unless an exemption applies. National company, insolvency, property and electronic-securities law determines whether the intended record and claim are legally effective.
Secondary-market design is a separate workstream. The EU DLT Pilot Regime creates a framework for authorised DLT market infrastructures to trade and settle eligible DLT financial instruments under defined conditions. It does not give every issuer permission to run an exchange or promise secondary liquidity. ESMA’s June 2025 review reported limited initial uptake and proposed changes, a reminder that legal eligibility and commercially viable market infrastructure are different questions.
Issuers comparing European routes should map regulated responsibilities explicitly. Lympid’s analyses of legal tokenization setup in Europe and tokenized-securities platform infrastructure explain how issuance, distribution, custody, trading and settlement sit in different regulatory perimeters.
Start with the investor’s enforceable claim. Define the issuer or fund, payment obligations, ranking, collateral, voting rights, maturity or redemption terms, and the events that permit suspension or enforcement. If those terms are ambiguous, token design will only digitize the ambiguity.
Next, identify the authoritative ownership record. Decide whether the DLT register itself has legal effect, whether a statutory or transfer-agent register prevails, and how the two are reconciled. Document recovery procedures for lost keys, sanctions events, court orders, erroneous transfers and corporate actions.
Then design the complete transaction rather than the token in isolation. Specify investor eligibility, disclosures, order handling, cash settlement, custody, tax reporting, servicing, distributions, redemptions and secondary transfers. Test a normal coupon or dividend, a rejected investor, a failed payment, a wallet change and a default or wind-down.
The right example is the one that matches the intended claim and operating model. A bond case helps with fixed payments and maturity; a fund case with pooled assets, valuation and redemption; direct equity with shareholder rights; and a secured-note structure with collateral and workouts. The technology should make that instrument easier to administer without obscuring who owes what to whom.
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