Tokenization Legal Structure: SPVs to Compliance

Special Purpose Vehicle (SPV) Structure

Every tokenized asset requires a Special Purpose Vehicle—a legal entity created solely to hold the asset and issue tokens. SPVs protect investors by:

• Bankruptcy remoteness: SPV bankruptcy doesn't affect underlying asset
• Clear ownership: Tokens represent proportional rights to SPV assets
• Tax efficiency: SPV structure can optimize tax treatment across jurisdictions
• Liability isolation: Operational issues don't affect token holder rights

Smart Contract Legal Framework

Smart contracts automate token operations but raise legal questions: Are they binding contracts? Who's liable if code fails? Emerging frameworks address these:

• EU treats smart contracts as binding agreements under MiCA
• US applies contract law principles, requiring "meeting of the minds"
• Insurance products cover code risk via "smart contract insurance"

Custody & Security

Institutional custody providers hold tokens in secure environments, managing private keys and providing insurance. Major providers include Coinbase Custody, Fidelity, and institutional-grade blockchain custodians.

Global Compliance Frameworks

European Union - MiCA (2024)

Comprehensive regulation covering tokenized securities, investor protection, and market conduct.

United States - SEC Securities Laws

Tokens meeting "investment contract" criteria under Howey Test are regulated as securities.

Middle East - Sandbox Approach

UAE, Saudi Arabia enable tokenization under regulatory sandboxes before full regulation.

Token Holder Rights

• Ownership: Proportional stake in underlying asset
• Income: Automatic distribution of dividends/rental income
• Governance: Vote on asset decisions (in most structures)
• Liquidation: Receive proceeds from asset sale

Key Takeaways

• SPV structure protects investors by isolating asset from operational risks
• Smart contracts must comply with local contract law
• Institutional custody ensures security and insurance coverage
• MiCA, SEC guidance, and regional frameworks provide increasing clarity
• Token holder rights include ownership, income, governance, and liquidation claims