Tokenised securitisations: Evolution not revolution
August 2026
Ranajoy Basu, partner, and Nathan Menon, director at Squire Patton Boggs, examine how tokenisation could modernise securitisation through digital issuance, faster settlement, and automation, while leaving its underlying legal architecture largely unchanged
Image: craig/stock.adobe.com
Tokenisation has emerged as one of the most discussed developments in structured finance, although practical implementation has come second to the enthusiasm surrounding distributed ledger technology (DLT). Rather than representing a new asset class, tokenised securitisations are best understood as conventional securitisations in which one or more components of the transaction lifecycle are represented or executed digitally using blockchain infrastructure. For lawyers, structurers, arrangers, and trustees, the key question is not whether securitisation principles change, as they largely do not, but rather how digital infrastructure alters issuance, settlement, administration, and investor participation.
Structure of a tokenised securitisation
At their core, tokenised securitisations retain the familiar legal architecture of a traditional asset-backed transaction.
The originator transfers a portfolio of receivables, loans, or other financial assets to a bankruptcy-remote special purpose vehicle (SPV) by way of a true sale (or similar risk transfer mechanism). The SPV finances the acquisition by issuing debt securities to investors. Cash collections from the underlying assets are applied through the transaction waterfall to pay expenses, service providers, and noteholders according to contractual priority.
The distinguishing feature is that the securities issued by the SPV exist as digital tokens recorded on a distributed ledger, rather than solely through traditional international central securities depositories (ICSDs), registrar systems, or custodians.
The process typically involves several additional steps:
- the SPV issues security tokens representing legal ownership of the notes.
- the tokens are recorded on a permissioned blockchain or digital securities platform.
- investors subscribe for the tokens through digital wallets or regulated custodians.
- transfers of ownership are recorded instantaneously on the ledger.
- smart contracts may automate selected administrative functions, including coupon calculations, investor reporting, or payment instructions.
Importantly, the token itself is generally not the legal obligation. Instead, it is the digital representation of rights arising under the conventional note documentation. English law-governed transaction documents — including trust deeds, agency agreements, and servicing agreements — continue to determine the legal relationship between the parties. The blockchain provides the infrastructure through which those rights are evidenced and transferred.
Most current transactions therefore adopt a ‘wrapper’ approach. Existing securitisation structures remain substantially intact, while the issuance and settlement mechanics are modernised through tokenisation.
This reflects both regulatory caution and the need for compatibility with existing institutional investment processes.
How tokenised securitisations differ
The principal differences between tokenised and conventional securitisations lie less in risk allocation than in how the transaction works operationally.
Digital securities rather than conventional notes
Traditional securitisations issue notes held through systems such as Euroclear or Clearstream, with beneficial ownership maintained through layers of custodians, registrars, and other intermediaries.
Tokenised securitisations instead record ownership directly on a distributed ledger. Transfers occur through blockchain transactions rather than settlement instructions between multiple intermediaries. This has the potential to reduce settlement times from two or more business days to near real-time while reducing operational reconciliation and the overall administrative burden.
Smart contract automation
Many administrative functions traditionally performed manually by calculation agents, paying agents, or administrators can potentially be automated using smart contracts.
Subject to appropriate controls and oversight, smart contracts may automatically:
- distribute coupon payments.
- allocate principal collections through the waterfall.
- calculate interest accruals.
- enforce transfer restrictions.
- and generate investor reports.
Such automation does not eliminate legal discretion and effective oversight where required, but it can significantly reduce operational risk and administrative cost, which could lead to greater numbers of transactions coming to market.
Enhanced transparency
Permissioned blockchains create a single immutable transaction record available to authorised participants.
Investors, trustees, and regulators may obtain real-time visibility over:
- note ownership
- settlement history
- payment records
- selected performance data
This contrasts with conventional transactions, where information often resides across multiple independent systems maintained by trustees, custodians, and paying agents, and investors can sometimes lack visibility of payments or asset performance other than at set reporting times.
Fractionalisation
Digital securities can be issued in significantly smaller denominations than traditional institutional notes. Although securitisations have historically targeted wholesale investors, tokenisation (and, in some instances, reduced operational costs) creates the technical capability for much smaller investment sizes.
This could well pave the way for a growing market in smaller transactions.
Legal considerations
For legal advisers and structurers, tokenisation introduces new issues without displacing familiar securitisation principles.
The first concerns the legal characterisation of the token itself. Documentation must clearly establish whether the token constitutes the legal security, evidences ownership of a conventional security, or merely acts as a transfer mechanism. Uncertainty in this regard could undermine certainty of title or enforceability.
Secondly, a conflict-of-laws analysis becomes increasingly important where distributed ledgers operate across multiple jurisdictions.
Questions regarding the governing law of proprietary interests in digital securities remain an area of active legal development, with new policy and legislative announcements occurring regularly.
In addition, custody arrangements become more complex. Instead of traditional global custodians, investors may hold tokens through regulated digital asset custodians or institutional wallet providers.
Transaction documents must allocate responsibility for key management, cybersecurity, and loss of access credentials.
For other service providers and other market participants, tokenisation creates further opportunities. Trustees, for example, assume additional oversight responsibilities.
While core trustee functions remain unchanged, trustees may require comfort regarding blockchain governance, smart contract integrity, cybersecurity controls, and operational resilience.
Finally, regulatory treatment continues to evolve. Most major financial centres — including the UK, Luxembourg, Singapore, and Switzerland — have adapted existing securities laws to accommodate tokenised issuances rather than creating entirely new regulatory regimes. Nevertheless, issuers must ensure that digital securities satisfy applicable local market requirements concerning issuance, settlement finality, investor protection, and market infrastructure.
The road ahead
While adoption has been gradual, the long-term trajectory for tokenised securitisations appears increasingly positive.
A growing number of financial institutions, infrastructure providers and regulators now view tokenisation as a practical means of modernising capital markets rather than a speculative application of untested blockchain technology. As digital securities frameworks continue to mature, tokenisation is moving from proof-of-concept transactions towards institutional deployment.
The most compelling opportunity lies in the ability to streamline the securitisation lifecycle. By combining digital issuance, near real-time settlement, automated lifecycle management, and a shared source and repository of transaction data, tokenisation has the potential to reduce operational complexity, shorten settlement cycles, and lower execution costs. These efficiencies are particularly attractive in complex, multi-party securitisations, where numerous intermediaries currently perform reconciliation and administrative functions, or on smaller transactions.
Momentum is also being driven by regulatory developments. Jurisdictions including the UK, the EU, Singapore, and Switzerland have introduced, or are developing, legal frameworks that recognise digital securities and facilitate their issuance and transfer. At the same time, major financial market infrastructures, global custodians, and central banks are investing heavily in digital asset capabilities, creating the ecosystem necessary for broader institutional adoption.
Over time, tokenisation may also unlock new forms of structured finance. Greater use of AI and programmability could enable dynamic payment waterfalls, automated compliance monitoring, and more sophisticated reporting, while increased fractionalisation may broaden the potential issuer and investor base for certain asset classes. Although these innovations are likely to develop incrementally, they point towards a more efficient, agile, and flexible securitisation market.
Structure of a tokenised securitisation
At their core, tokenised securitisations retain the familiar legal architecture of a traditional asset-backed transaction.
The originator transfers a portfolio of receivables, loans, or other financial assets to a bankruptcy-remote special purpose vehicle (SPV) by way of a true sale (or similar risk transfer mechanism). The SPV finances the acquisition by issuing debt securities to investors. Cash collections from the underlying assets are applied through the transaction waterfall to pay expenses, service providers, and noteholders according to contractual priority.
The distinguishing feature is that the securities issued by the SPV exist as digital tokens recorded on a distributed ledger, rather than solely through traditional international central securities depositories (ICSDs), registrar systems, or custodians.
The process typically involves several additional steps:
- the SPV issues security tokens representing legal ownership of the notes.
- the tokens are recorded on a permissioned blockchain or digital securities platform.
- investors subscribe for the tokens through digital wallets or regulated custodians.
- transfers of ownership are recorded instantaneously on the ledger.
- smart contracts may automate selected administrative functions, including coupon calculations, investor reporting, or payment instructions.
Importantly, the token itself is generally not the legal obligation. Instead, it is the digital representation of rights arising under the conventional note documentation. English law-governed transaction documents — including trust deeds, agency agreements, and servicing agreements — continue to determine the legal relationship between the parties. The blockchain provides the infrastructure through which those rights are evidenced and transferred.
Most current transactions therefore adopt a ‘wrapper’ approach. Existing securitisation structures remain substantially intact, while the issuance and settlement mechanics are modernised through tokenisation.
This reflects both regulatory caution and the need for compatibility with existing institutional investment processes.
How tokenised securitisations differ
The principal differences between tokenised and conventional securitisations lie less in risk allocation than in how the transaction works operationally.
Digital securities rather than conventional notes
Traditional securitisations issue notes held through systems such as Euroclear or Clearstream, with beneficial ownership maintained through layers of custodians, registrars, and other intermediaries.
Tokenised securitisations instead record ownership directly on a distributed ledger. Transfers occur through blockchain transactions rather than settlement instructions between multiple intermediaries. This has the potential to reduce settlement times from two or more business days to near real-time while reducing operational reconciliation and the overall administrative burden.
Smart contract automation
Many administrative functions traditionally performed manually by calculation agents, paying agents, or administrators can potentially be automated using smart contracts.
Subject to appropriate controls and oversight, smart contracts may automatically:
- distribute coupon payments.
- allocate principal collections through the waterfall.
- calculate interest accruals.
- enforce transfer restrictions.
- and generate investor reports.
Such automation does not eliminate legal discretion and effective oversight where required, but it can significantly reduce operational risk and administrative cost, which could lead to greater numbers of transactions coming to market.
Enhanced transparency
Permissioned blockchains create a single immutable transaction record available to authorised participants.
Investors, trustees, and regulators may obtain real-time visibility over:
- note ownership
- settlement history
- payment records
- selected performance data
This contrasts with conventional transactions, where information often resides across multiple independent systems maintained by trustees, custodians, and paying agents, and investors can sometimes lack visibility of payments or asset performance other than at set reporting times.
Fractionalisation
Digital securities can be issued in significantly smaller denominations than traditional institutional notes. Although securitisations have historically targeted wholesale investors, tokenisation (and, in some instances, reduced operational costs) creates the technical capability for much smaller investment sizes.
This could well pave the way for a growing market in smaller transactions.
Legal considerations
For legal advisers and structurers, tokenisation introduces new issues without displacing familiar securitisation principles.
The first concerns the legal characterisation of the token itself. Documentation must clearly establish whether the token constitutes the legal security, evidences ownership of a conventional security, or merely acts as a transfer mechanism. Uncertainty in this regard could undermine certainty of title or enforceability.
Secondly, a conflict-of-laws analysis becomes increasingly important where distributed ledgers operate across multiple jurisdictions.
Questions regarding the governing law of proprietary interests in digital securities remain an area of active legal development, with new policy and legislative announcements occurring regularly.
In addition, custody arrangements become more complex. Instead of traditional global custodians, investors may hold tokens through regulated digital asset custodians or institutional wallet providers.
Transaction documents must allocate responsibility for key management, cybersecurity, and loss of access credentials.
For other service providers and other market participants, tokenisation creates further opportunities. Trustees, for example, assume additional oversight responsibilities.
While core trustee functions remain unchanged, trustees may require comfort regarding blockchain governance, smart contract integrity, cybersecurity controls, and operational resilience.
Finally, regulatory treatment continues to evolve. Most major financial centres — including the UK, Luxembourg, Singapore, and Switzerland — have adapted existing securities laws to accommodate tokenised issuances rather than creating entirely new regulatory regimes. Nevertheless, issuers must ensure that digital securities satisfy applicable local market requirements concerning issuance, settlement finality, investor protection, and market infrastructure.
The road ahead
While adoption has been gradual, the long-term trajectory for tokenised securitisations appears increasingly positive.
A growing number of financial institutions, infrastructure providers and regulators now view tokenisation as a practical means of modernising capital markets rather than a speculative application of untested blockchain technology. As digital securities frameworks continue to mature, tokenisation is moving from proof-of-concept transactions towards institutional deployment.
The most compelling opportunity lies in the ability to streamline the securitisation lifecycle. By combining digital issuance, near real-time settlement, automated lifecycle management, and a shared source and repository of transaction data, tokenisation has the potential to reduce operational complexity, shorten settlement cycles, and lower execution costs. These efficiencies are particularly attractive in complex, multi-party securitisations, where numerous intermediaries currently perform reconciliation and administrative functions, or on smaller transactions.
Momentum is also being driven by regulatory developments. Jurisdictions including the UK, the EU, Singapore, and Switzerland have introduced, or are developing, legal frameworks that recognise digital securities and facilitate their issuance and transfer. At the same time, major financial market infrastructures, global custodians, and central banks are investing heavily in digital asset capabilities, creating the ecosystem necessary for broader institutional adoption.
Over time, tokenisation may also unlock new forms of structured finance. Greater use of AI and programmability could enable dynamic payment waterfalls, automated compliance monitoring, and more sophisticated reporting, while increased fractionalisation may broaden the potential issuer and investor base for certain asset classes. Although these innovations are likely to develop incrementally, they point towards a more efficient, agile, and flexible securitisation market.
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