Opinion: Elisenda Fabrega, General Counsel of Brickken
The European regulatory framework targets transferable assets. However, a significant number of assets, including shares of unlisted companies and customized profit-sharing contracts, are inherently non-transferable by design. The definition of crypto assets in the Markets in Crypto-Assets Regulation (MiCA) presupposes transferability. The Markets in Financial Instruments Directive (MiFID II) focuses on transferable securities and continues to apply to digital representations of such securities. Therefore, these "digital but non-transferable" instruments fall into a regulatory blind spot.
The EU Blockchain Sandbox provides a solution: a faithful "digital twin" can retain the legal attributes of the original non-transferable asset without being automatically classified as a new, transferable security token.
Some viewpoints argue that setting exemptions for non-transferable tokens would create regulatory loopholes. Conversely, others believe that any token on a public chain is inherently tradable. Both perspectives are understandable, but the report clearly states that neither is correct. If legal, technical, and contractual measures can align to preserve the essence of the underlying asset, the legal classification of the digital representation will not change.
Securities on the ledger still legally belong to the category of securities. In other words, whether issued in traditional or tokenized form, bonds remain bonds, and stocks remain stocks. But the reverse is equally important: if a digital twin of a non-transferable asset is created, merely registering it on-chain does not transform it into a security token or a crypto asset regulated by MiCA.
The EU Blockchain Sandbox process has established a practical analytical sequence. First, determine whether the token falls under MiFID II financial instruments; if not, assess whether it falls within the scope of MiCA; if still not applicable, consider whether the collective investment structure is subject to the Alternative Investment Fund Managers Directive (AIFMD); otherwise, apply national law. This sequence is crucial to prevent artificially designed token characteristics from dominating legal classification. The transferability threshold under MiCA is key: if a token is non-transferable, it does not fall under MiCA crypto assets, and the classifications of utility, asset-backed, or electronic money tokens under MiCA do not apply.
When the underlying asset is accurately replicated (a true digital twin), the legal classification should remain unchanged. If they add transferability solutions or packaging, they may create a new tool for a non-transferable underlying asset, which may fall under MiCA or MiFID II. Qualification depends on the technical and contractual characteristics of the token, not just off-chain documents.
When developers want to create a digital representation of a non-transferable asset but then add transferability for liquidity needs, they may fail to reflect the underlying asset, and they are creating a new digital tool that may fall under different regulations. Therefore, adequate technical measures, full compliance with applicable regulations, and legal advice based on specific national laws are crucial to avoid redefinition as a transferable asset.
For the second batch of participants, dialogue with regulators has clarified the "digital twin" test now defined in the Best Practices Report. If the token is a perfect digital replica of the original asset, its legal qualification remains unchanged. However, if tokenization introduces new features not present in the underlying asset, such as transferability, the legal classification may change. This interpretation is also consistent with the ongoing analysis of when a token qualifies as a MiFID II financial instrument.
The report delves into the concept of non-transferability itself. Contractual restrictions or allowed whitelist gating are not sufficient. The decisive factor is that it is technically impossible to transfer to anyone other than the issuer or offeror, and if the holder changes, a redemption and reissuance mechanism must be implemented. This is the engineering level that excludes tokens from the MiCA transferability category.
Regulators do not need new regulations to mitigate risks associated with innovation. They need concise, practical guidance to codify the sandbox sequence and "twin" test: (1) start with MiFID II; (2) if not within MiFID II, test whether it belongs to any asset classification under MiCA; (3) if neither applies, check if it is a digital twin of an asset recognized by national law, such as private company quotas.
Finally, the sandbox experience demonstrates the immense value of structured dialogue between regulators and the industry and the importance of addressing legal gaps. This requires clarifying how existing frameworks like MiFID II, MiCA, and AIFMD interact with tokenization. It also means examining the uncertainties that arise and how to address them in practice. Key tools are the concepts of digital twins, transferability, and fungibility. These characteristics directly determine legal qualification.
The next step may be to observe how national sandboxes in various jurisdictions consistently apply their respective laws and whether this process contributes to greater uniformity among member states, thereby enhancing legal certainty across the European market.
Clear guidance will unleash the compliance digitalization of Europe's vast market for private companies and contractual rights while avoiding impacts on issuance due to reclassification. By clearly distinguishing between digital twins and artificially designed transferability, the EU can keep real-world asset (RWA) tokenization local rather than pushing developers to non-EU regions.
Tokenization is neither a free pass nor a trap.
The EU Blockchain Sandbox has already pointed the way. Now, regulators should solidify it, clarifying boundaries for builders and ensuring investors understand the assets they purchase. Only in this way can market boundaries be defined, investor interests protected, and the development of the European market promoted.
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Original text: “There is a blind spot in the regulation of European digital assets regarding transferability”
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