The path to making tokenized real-world assets (RWAs) compliant rests less on blockchain novelty and more on satisfying securities-law standards, operational disclosure duties and enforceable control frameworks that regulators recognize. Former SEC counsel frames RWA compliance around robust, ongoing disclosures, enforceable transfer controls and proactive regulatory engagement, directly shaping issuer onboarding, listing potential and secondary-market readiness.
Regulatory classification, disclosure and the Howey lens
Former SEC counsel underscores that classification ultimately hinges on economic reality rather than token labels, with the Howey Test applied to determine whether a token is a security. The Howey Test assesses whether there is an investment of money in a common enterprise with an expectation of profit from the efforts of others, and once that threshold is met, issuers must either register offerings under the Securities Act of 1933 or document a valid exemption that defines the scope of ongoing reporting and liability. Required disclosures extend beyond launch documents and must include clear title and ownership, valuation methods and reappraisal cadence, custodial arrangements, profit-sharing and fee mechanics, governance rights and exhaustive risk factors, because these disclosure practices are the investor-protection backbone that control how easily products can be listed, marketed and integrated into institutional workflows.
Standard Layer-1 tokens are described as structurally insufficient for compliance because basic ERC-20 tokens cannot natively restrict transfers, enforce KYC/AML checks or execute complex corporate actions needed for regulated instruments. ERC-20 is defined as a fungible token standard that specifies how tokens are transferred and approved on an L1 chain, but compliant RWAs require embedded transfer restrictions, investor allow-lists and dynamic lock-ups implemented through advanced smart-contract standards or permissioned ledgers. These technical choices reshape user flows: onboarding must incorporate off-chain identity verification and allow-list checks, secondary trading depends on platform-level routing and market-maker integrations, and corporate actions rely on oracle or custody hooks, so each additional control layer increases steps per operation and expands the UX failure surface from rejected transactions to confusing confirmation modals that erode conversion.
Jurisdictional constraints remain a structural limiter, as securities laws are nationally bounded and a structure that is compliant in one market does not automatically passport into other regulatory regimes. This fragmentation forces region-specific product architectures, routing logic and eligibility rules, and implementing dynamic transfer restrictions tied to state or country qualification increases backend complexity while reducing wallet interoperability and raising support overhead. Yield design is another critical fault line: regulators differentiate passive, inherent yield from returns linked to user action, and, as Ashley Ebersole notes, if an investor earns yield simply by holding an asset, regulators are likely to view that pattern as a hallmark of a security with corresponding disclosure and compliance obligations. UX and product teams must therefore design permission and explanation flows that clearly surface why yield is generated and what user actions, if any, drive those economics.
In aggregate, the analysis concludes that making RWAs compliant demands legal-first architecture, transparent and recurring disclosures, and technical controls that deliberately trade maximum decentralization for enforceability, auditability and jurisdiction-aware transfer logic. These design choices materially increase onboarding friction and operational checks, but they are presented as the necessary cost of securing regulatory acceptance, institutional trust and durable secondary-market participation for tokenized real-world assets.