The Structural Models of Tokenization: Why Most Tokens Are Not the Asset

The Problem with How We Talk About Tokenization

Tokenization is often described as if it were a single, simple idea. An asset goes on-chain, a token is created, and ownership becomes digital.

That framing feels intuitive, but it hides the most important question in tokenized markets: what exactly is being tokenized?

In practice, tokenization is rarely just a technology story. It is a structural exercise that combines different layers, and confusion usually appears when those layers get mixed together.

The Three Layers of Tokenization

To understand how tokenization actually works, it helps to separate technology from legal reality.

Layer 1: The Asset Layer

This is the underlying thing of value: real estate, commodities, debt, equity, infrastructure or fund portfolios.

The asset exists independently of blockchain technology. Ownership and transfer are governed by existing law: property law, corporate law, securities law or contract law.

Layer 2: The Legal Layer

This is the layer that matters most, and the one people often skip.

Here, the asset is translated into legally enforceable rights through a structure such as a company, an SPV, a trust, a fund or a contractual arrangement. This layer determines who owns what, how rights can be enforced, and what happens if things go wrong.

Layer 3: The Token Layer

Only here does blockchain enter the picture.

The token represents rights created in Layer 2. It may improve transferability or operational efficiency, but it does not create ownership rights on its own.

Most public conversations focus almost entirely on Layer 3. Legally and economically, however, the real logic sits in Layer 2.

Structural Models of Tokenization

Once these layers are separated, two clear structural models appear.

Direct Tokenization: The Token Is the Asset

Direct tokenization is often described as the ideal destination.

In this model, the token itself is the legal instrument. It is not just evidence of ownership, it is ownership. Transferring the token transfers the right itself.

Conceptually, this resembles older financial instruments like bearer certificates or official registry entries, but rebuilt on digital infrastructure.

The attraction is obvious. The legal chain between investor and asset is short, and technical transfer aligns directly with legal transfer.

But this model remains rare because it requires more than technology. Legal systems need to recognise digital registers, transfer rules need to work with real-time settlement, and identity infrastructure must support compliance obligations.

Where those conditions do not exist, direct tokenization becomes difficult to implement legally.

Indirect Tokenization: The Token Represents Rights

This is the model behind most real-world projects today.

Here, the underlying asset stays where it already sits, inside a traditional legal structure. A financial instrument is created on top of it, often equity, debt or a beneficial interest, and that instrument is tokenized.

So the structure typically looks like this: the asset remains off-chain, an intermediary entity holds or controls it, and the token represents rights against that entity.

Seen this way, tokenization looks less like disruption and more like an extension of securitisation logic, with blockchain acting as a new issuance and transfer layer.

This approach has clear advantages. It works within existing regulation, supports fractionalisation, and gives investors rights that are familiar to courts and regulators. But it also introduces extra layers of risk: governance risk, manager dependency, and insolvency exposure at the intermediary level.

Why Indirect Tokenization Dominates

Indirect structures did not emerge by accident. They solve practical problems that markets already face.

First, existing legal systems already understand companies, funds and trusts. Building on top of those structures avoids legal uncertainty.

Second, regulators are used to supervising identifiable issuers and intermediaries. Indirect models keep those actors visible and accountable.

Third, registries for real estate, securities and company ownership are still largely off-chain. Integrating them directly into blockchain systems would require significant institutional change.

Indirect structures allow tokenization to move forward without waiting for those reforms.

There are also practical investor-protection reasons. SPVs and funds provide established frameworks for governance, insolvency handling and disclosure. Many assets also come with transfer restrictions or eligibility checks that are easier to manage through intermediary structures.

In short, indirect tokenization is not a compromise. It is a practical way of adapting new technology to existing legal infrastructure.

What Is Actually Being Tokenised?

This structural perspective leads to an important realisation. The asset described in marketing materials is often not the thing being tokenized.

A product called “tokenized real estate” may actually represent shares in an SPV that owns property. A “tokenized commodity” may be a claim against a custodian. A “tokenized credit product” may be fund units representing pooled exposure.

The real question therefore becomes: is the token linked directly to the asset, or to an intermediary structure?

That distinction shapes investor rights, risk exposure and regulatory treatment.

Why Most Tokenization Falls Into Securities Regulation

Once the legal structure is made clear, the regulatory outcome becomes easier to predict.

Indirect models typically involve pooled assets, professional management and an expectation of profit linked to the performance of others. These are familiar features of securities.

The European approach: substance over form

In Europe, regulation focuses on economic reality rather than technological presentation.

If a token represents a financial instrument, MiFID II applies. Public offerings may trigger Prospectus Regulation requirements. Crowdfunding rules or private placement thresholds may also apply depending on how the offering is structured.

The U.S. approach: economic reality first

The U.S. reaches similar conclusions through securities law principles and the Howey analysis.

Depending on how a tokenized product is structured and sold, offerings may rely on Regulation D, Regulation S, Regulation A or Regulation Crowdfunding. The key assessment remains economic substance, not whether the asset sits on-chain.

A Structural Lens for the Future of Tokenization

The Structural Reality of Tokenization

Tokenization discussions often begin with technology or marketing labels. But durable analysis starts elsewhere.

The core question is not whether an asset is on-chain. The real question is: what legal structure connects the token to the asset, and what rights does that structure create?

Once this question is asked, many projects that look innovative reveal themselves as familiar financial structures operating through new infrastructure. This is also why tokenization repeatedly converges toward securities regulation: most tokens represent claims or exposures rather than direct ownership.

Technology changes how transfer happens. Law continues to define ownership.

Direct Tokenization: The Emerging Frontier

Direct tokenization is still being explored, and regulators are beginning to test limited pathways toward it. These experiments remain cautious because questions around settlement finality, system-of-record authority and financial stability are not trivial.

For now, direct tokenization is better understood as a direction of travel rather than today’s market reality.

Seen from this perspective, the future of tokenization is not simply about putting assets on-chain. It is about deciding where legal ownership is ultimately recorded and recognised.

Indirect models fit comfortably within existing systems because they preserve familiar legal anchors. Direct models would require deeper institutional change, from registries to settlement infrastructure to regulatory accountability.

Until those systems evolve, most tokenization will remain structurally indirect, not because technology cannot do more, but because legal and institutional systems still define where trust lives.

‍