Asset Tokenization in EU

Tokenization is a process in which ownership rights, debt claims, or economic interests in a real-world asset are recorded on a blockchain in the form of tokens. These tokens do not create a new asset but represent existing rights that continue to be governed by traditional civil and financial law.

Unlike cryptocurrencies, tokenized assets have a direct link to existing assets and are governed by applicable financial legislation. Their legal status is determined not by the technology, but by the economic substance of the rights they represent.

Within the framework of European projects, tokens can represent a share in real estate, a stake in an investment fund, bond obligations, or other financial instruments. The legal link between the token and the underlying asset is ensured by contractual documentation, corporate structure, and custody mechanisms, not merely by an entry in a distributed ledger.

In Europe, tokenization is applied to a wide range of assets. The most common projects involve commercial and residential real estate, where tokens represent shares in a special-purpose vehicle that owns the property.

Models for tokenizing debt instruments, including private loans, bonds, and structured products, are also actively developing. Management companies use tokens to represent shares in investment funds, which allows for the automation of investor record-keeping and simplifies secondary trading.

Tokenization can also be applied to commodities, claims, and alternative assets, provided there is a legally enforceable structure linking the tokens to the underlying assets.

To protect investors’ rights and separate the asset from the issuer’s balance sheet, a special structure, such as an SPV, is typically established. This structure becomes the holder of the underlying asset and the issuer of the tokens.

Investor rights are established through:

• corporate documents;
• agreements between the structure’s participants;
• accounting and custody mechanisms.

Without a proper legal structure, a token does not provide enforceable rights to the underlying asset. This is why legal structuring is a key element of any tokenization project.

Launching a tokenized project in the EU requires compliance with anti-money laundering (AML), investor identification, and personal data protection requirements. KYC and AML procedures must be integrated into the investor onboarding process and subsequent token transactions.

Since blockchain, by its nature, does not allow for data deletion, the architecture of tokenization platforms must take GDPR requirements into account and ensure that personal information is stored outside the public ledger.

Depending on the project model, it may be necessary to obtain a license as a crypto-asset service provider, an investment firm, or authorization under the DLT Pilot Regime. These requirements are determined by both the token structure and the nature of the services provided, including storage, trading, or asset management.

Despite growing regulatory clarity, the tokenization of assets in the EU remains legally complex. Errors in token classification could result in a project being deemed a securities offering without compliance with prospectus or licensing requirements.

The liquidity of tokenized assets is also not guaranteed. The possibility of secondary trading depends on the availability of regulated trading venues, investor interest, and compliance with transfer restrictions established by law or the offering documentation.

Additional complexities may arise in cross-border projects, where differences in tax regimes, corporate law, and investor protection requirements across member states must be taken into account.

Understanding and managing these risks is an important part of providing legal support for the project.

Gofaizen & Sherle advises clients on asset tokenization at all stages of the project, from the initial feasibility assessment to post-token issuance support.

Our services include:

• preliminary analysis;
• assessment of the asset and its suitability for tokenization;
• analysis of applicable regulations and jurisdictions;
• development of the legal structure;
• preparation of the contractual framework and disclosure materials;
• drafting of legal opinions on the token’s status;
• support for authorization and licensing procedures;
• communication with national regulatory authorities;
• advice on secondary trading;
• support in the areas of ongoing compliance and reporting.

As part of our comprehensive support, Gofaizen & Sherle’s lawyers provide an initial project assessment and help determine the optimal jurisdiction, legal model, and market entry strategy within the framework of current EU regulatory requirements. Our specialists also coordinate with technical providers, custodians, and other project participants to ensure that the tokenization structure complies with both the technological and regulatory requirements of the European market.

Gofaizen & Sherle is an international law and consulting firm specializing in regulated business models in the fields of digital assets, fintech, and capital markets. Our firm has supported hundreds of projects, including asset tokenization initiatives, and has experience working in more than 50 jurisdictions. This experience allows us to design structures that comply with the requirements of multiple legal systems and are suitable for cross-border offerings.

Engaging Gofaizen & Sherle’s legal advisors helps avoid errors in the issuance structure, shortens the time required for regulatory approval, and builds trust among investors and partners.