Understanding how federal securities laws apply to tokenized real-world assets. DeFi Lend operates in full compliance with SEC guidance on tokenized securities (January 28, 2026) and the Howey Test framework.
The SEC uses the Howey Test (from SEC v. W.J. Howey Co., 1946) to determine whether an asset is a security. An investment contract is a security if it involves:
A person invests money or other valuable consideration
The investment is in a common enterprise (pooled or collective)
There is an expectation of profits or returns
Profits are derived from the efforts of a promoter or third party
Key Principle: If all four criteria are met, the asset is considered a security and must comply with federal securities laws (registration or exemption).
Direct Ownership Model
No Common Enterprise: Each token represents a specific property, not a pooled fund
No Efforts of Others: Passive ownership like owning a house deed
Property Law: Governed by property transfer laws, not securities laws
What You Can Do:
Physical Asset Backing
Commodity Law: Regulated under CFTC, not SEC securities laws
Physical Backing: Tokens represent ownership of physical gold, silver, etc.
No Investment Contract: Direct ownership of commodity, not profit expectation
What You Can Do:
Third-Party Custodial Model
Always a Security: Stocks are securities by definition under federal law
Custodial Model: Third-party holds actual shares, token represents indirect interest
Trading Restricted: Requires broker-dealer license or licensed exchange
What You Can Do:
Debt Security Model
Debt Security: Bonds are debt securities under federal law
Investment Contract: Expectation of fixed returns from issuer's efforts
Trading Restricted: Requires broker-dealer license or licensed platform
What You Can Do:
Accepting tokenized assets as collateral for loans is traditional lending activity, not securities trading.
Facilitating buy/sell transactions of securities requires broker-dealer registration or partnership with licensed entities.
We operate as a collateralized lending platform, not a securities trading platform. This means:
January 28, 2026
The SEC staff released a landmark statement providing a clear taxonomy for tokenized securities, emphasizing that the "format" of a security (digital token or paper certificate) does not change the fundamental application of the Securities Act or the Exchange Act. Substance always wins over form.
Issuers can tokenize securities by integrating DLT into the master securityholder file. These are onchain database records used alongside traditional offchain information.
Unaffiliated third parties may tokenize an issuer's security without their involvement. Rights may differ from the underlying security, and holders face unique risks (e.g., custodian bankruptcy).
| Asset Type | Is Security? | Trade on DeFi Lend? | Use as Collateral? | Regulatory Model |
|---|---|---|---|---|
Real Estate | NO | Direct Ownership | ||
Commodities | NO | Physical Backing | ||
Equities (xStocks) | YES | Custodial Model | ||
Bonds | YES | Debt Security |