A tokenized security is a regulated security, such as a share, a bond or a fund interest, that is issued or recorded on a blockchain as a token. The rights and authoritative ownership record depend on its legal structure. Issuer-sponsored tokens, custodial entitlements and synthetic exposures can give holders different claims; securities laws still apply.
That last point is why tokenized securities need a regulated way to trade and settle, not just a smart contract that mints them.
What are tokenized securities?
Holder rights and ownership records depend on the structure. Some tokens record issuer-sponsored securities; others represent custodial entitlements or synthetic exposure. The authoritative record can involve on-chain and off-chain systems. See the SEC staff's January 2026 taxonomy.
The tokenization model determines the holder's rights; blockchain format alone does not establish a direct claim on an underlying asset. This has three consequences: The BIS describes the range of designs in The tokenisation continuum.
- Securities law still governs the offering, the holders and the trading venue.
- The issuer still needs offering documents and a legal entity behind the token.
- Eligibility and transfer restrictions must be enforced through the token and associated systems as applicable; moving a record on-chain does not remove securities obligations.
The tokenized security glossary entry gives the short definition.
Trading is the step many issuers lack. Liquid Mercury provides tokenized asset marketplace infrastructure for it, with embedded KYC/AML and DvP settlement, and describes an institutional RWA secondary market for tokens that carry securities rules.
Tokenized securities vs security tokens vs RWA tokens
The three terms overlap and are often used loosely. This table gives the usual meaning of each.
| Term | What it usually means | Example of what it covers |
|---|---|---|
| Tokenized security | A security represented using blockchain records; holder rights depend on its structure | A tokenized fund share, a tokenized bond |
| Security token | A token that is itself a security because of the rights it carries and how it is offered | A token issued natively on-chain that gives equity-like or debt-like rights |
| RWA token | A token that represents a right in any real-world asset, whether or not securities law applies | A token backed by a Treasury fund, a loan pool, a commodity or a property interest |
A tokenized security is a kind of RWA token, but an RWA token is not always a security. Classification depends on the rights and the facts of the offering, so it is a question for counsel. For the wider picture, see the RWA tokenization overview.
Types of tokenized securities
Equity. Shares in a company, represented as tokens. Securitize, for example, describes issuer-sponsored public equities in tokenized form on its homepage (securitize.io).
Debt. Bonds and notes, with the interest and repayment terms of the underlying instrument. Tokeny's homepage quotes a client that embedded compliance rules into its digital bonds (tokeny.com).
Funds. Units or shares of a fund. Securitize describes issuing tokenized funds (securitize.io), and Tokeny describes managing the lifecycle of tokenized securities, including corporate actions (tokeny.com).
Money market funds. Funds that hold short-term government and cash instruments, tokenized so that shares can be subscribed and redeemed on-chain. See tokenized treasuries for how these products work.
The product materials for Liquid Mercury's Mercury Pro describe multi-asset support for "tokenized securities, funds, real assets, digital assets, and stablecoins." No named issuer or asset is referenced here.
How tokenized securities are issued
Issuance follows the same path as any regulated offering, with a token step added:
- The issuer sets up the legal entity and the offering documents.
- A token standard with transfer restrictions is chosen, and the token is deployed.
- Investors pass identity and eligibility checks.
- Tokens are issued to verified wallets against subscriptions.
- A transfer agent or platform keeps the register in sync with the chain.
The full sequence, with the roles at each step, is in The RWA Tokenization Process, Step by Step.
How tokenized securities trade
Issuance puts the token in the hands of first investors. Trading is what lets those investors sell to someone else.
Tokenized securities can trade in three kinds of places:
- A registered trading system. In the United States this can be an alternative trading system, which is a venue regulated as a broker-dealer operation. See alternative trading system and the Reg ATS glossary entry.
- A broker-dealer venue. A broker-dealer matches or routes orders for its clients.
- Bilaterally. Two eligible parties agree a trade and the issuer or agent updates the register. This is possible but offers no price discovery.
A registered venue matters because it brings rules on fair access, record-keeping and surveillance that an unregulated peer-to-peer transfer does not. Whether a given deployment needs registration is a legal question. In the EU, the DLT Pilot Regime sets a separate framework for trading and settling tokenised securities on DLT market infrastructure. In the UK, the FCA runs the Digital Securities Sandbox for firms testing DLT in trading and settlement.
More detail on the mechanics is in tokenized securities secondary market.
Primary vs secondary market
The primary market is where the issuer sells new securities to investors. The secondary market is where investors trade securities they already hold. Liquid Mercury, the Chicago-based institutional digital asset infrastructure provider, describes Mercury RWA as supporting "both primary issuance and active secondary market trading," with live pricing, liquidity depth and market analytics.
Primary issuance gets a token to a holder. Without a secondary market, the holder has few ways to exit before maturity or redemption. That is the gap the Mercury RWA materials describe in the line "Digital representation does not automatically create liquid markets."
Settlement: DvP and T+0
Settlement is the moment ownership and payment actually change hands. Delivery versus payment links final delivery and payment to avoid principal risk. Liquidity, operational and replacement-cost risks can remain. See delivery versus payment. The BIS Principles for financial market infrastructures explain why linking the two legs of a trade matters.
T+0 means settlement on the trade date, not a day or more later. A blockchain record can make that possible when the payment leg is also on a shared record. Mercury RWA describes a settlement path that combines Mercury Ledger position keeping, BitGo custody connectivity and KYC verification in the workflow, and delivery-versus-payment execution. In the euro area, TARGET2-Securities is the Eurosystem platform for settling securities in central bank money.
Compliance requirements
A compliant secondary market for tokenized securities needs four things in place:
- Investor eligibility. Every buyer and seller is verified against the rules in the offering. Mercury RWA describes automated investor eligibility verification and automated KYC/AML checks.
- Transfer restrictions. The token or the platform blocks transfers to ineligible parties. Mercury RWA describes smart-contract based transfer restrictions and compliance rules.
- Venue rules. The venue follows the regulation that applies to its activity.
- Audit and reporting. Each trade leaves a record that supports regulatory reporting and audits. Mercury RWA lists audit trails and regulatory reporting tools.
Risks and limits
- Liquidity. A token that is legally transferable may still have no active buyers.
- Legal enforceability. The token is only as strong as the legal structure behind it.
- Custody. Both the underlying asset and the token need safekeeping. Loss of a key or failure of a custodian affects holders.
- Venue availability. A given token may trade on few venues, and eligibility rules can exclude investors in some jurisdictions.
- Fragmentation. Different platforms use different standards and chains, which makes moving a token between venues harder.
This page is educational and is not investment or legal advice.
Frequently Asked Questions
What is a tokenized security?
What does it take to run a compliant secondary market for tokenized assets?
What compliance infrastructure is required for cross-chain transfer of regulated tokenized securities?
How do I issue security tokens backed by real-world assets?
What should you look for in an exchange or broker to trade regulated RWA tokens?
Related Reading
Tokenized Securities Secondary Markets: Custody and DvP
How tokenized securities trade after issuance, including eligibility, custody, transfer restrictions and delivery-versus-payment settlement.
RWA Tokenization: Definition, Process and Platforms
RWA tokenization turns rights in real-world assets into blockchain tokens. See how it works, whether tokens are securities, and what to ask a platform.
Tokenized Treasuries: How They Work and How to Trade Them
Tokenized treasuries put US Treasury exposure on a blockchain. How they work, how they are redeemed and traded, and what institutions should check.
RWA Tokenization Process: 7 Steps From Asset to Token
The RWA tokenization process in seven steps: legal structure, token standard, custody, KYC, issuance, trading and settlement, plus who owns each step.
Alternative Trading System (ATS): Definition and Rules
An ATS is an SEC-registered trading venue that is not an exchange. How it works, Regulation ATS and Form ATS-N, and how ATSs are used for digital assets.