Lynn Johannson, Advisor, Sustainability and ESG
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Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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Are Your Tokens Securities? New EU Rules Say Maybe
EU Crypto Guidelines | March 28, 2025
Image: Guidelines - Crypto assets as financial instruments (ESMA)
New EU Guidelines Help Clarify the Line Between Crypto and Securities
Last month, the European Securities and Markets Authority (ESMA) published detailed guidelines (21 page PDF) as part of Markets in Crypto Asset Regulation (MiCAR) that help regulators and crypto companies figure out whether or not a specific crypto asset should be treated like a financial instrument and be regulated under Europe’s traditional investment rules, affecting how it's issued, traded, and supervised. This article provides an overview of the guidelines for your review.
Tokens That Act Like Shares or Bonds Will Be Regulated Like Them
For anyone new to securities laws, one of the first things you'll hear and/or learn is the expression, "If it walks like a duck, and talk like a duck, then it's probably a duck!" This means that regulators aren't necessarily looking how a token is built or which blockchain it runs on. What really matters is how it behaves.
See: 10 Insights from IOSCO’s Report for Crypto Investors
Under MiFID II, a token or crypto asset is probably a tradeable security if all 3 conditions are true:
- the crypto asset functions as a payment tool (i.e. not just used to buy stuff)
- the crypto asset belongs to a group or “class” with identical rights (like dividends or votes)
- the crypto asset is tradeable on capital markets
That includes tokenized shares, debt instruments, and some structured products. So if it walks and talks like a stock, Europe will treat it like one. Having said that, if any one of the above conditions is false then it doesn't qualify as a transferable security under EU rules.
Other Financial Products Can Be Tokens Too
Not every token that’s regulated is a stock or share. Some crypto assets are more like short-term loans (or money market instruments). Other tokens might give you a piece of a shared investment fund, placing them in the pooled fund category. Some tokens are derivatives where the price simply follows the price of something else like a stock or index.
See: Crypto Meets Wall Street as SEC Approves Yield Stablecoin
There’s even the potential for carbon credit tokens, if they enable the right to emit greenhouse gases under Europe’s trading system. Each of these different types of token behaviours has its own legal checklist but generally, if a token offers financial returns and matches one of the above types, it will probably be treated as a regulated investment.
Utility Tokens, NFTs & Hybrids? It Depends.
Some tokens are meant to unlock access to perks like discounts, special features, or premium content. The ESMA calls these utility tokens which aren't treated like investments unless they also come with for profit rights or trade on open markets like stock/shares.
Now, what about NFTs in the EU? Just because an NFT may be considered 'unique' doesn't mean it avoids the rules. If the NFT provides financial benefits or trades like a stock, then it could still be recognized as an investment. This is true even for fractional NFTs but if they act like tiny investments then they could be regulated just like regular securities.
See: Stablecoins Are Growing Faster Than You Think
Some tokens combine utility and investment features together and are considered hybrid tokens. In these cases, the ESMA says the financial part trumps the utility part, and like in all cases, if the token looks like an investment, it needs to follow investment rules, regardless how many other functions it provides.
Conclusion
This new crypto guidance (translated versions in multiple languages) helps reduce the grey area between securities and crypto assets. It also puts pressure on projects to think very carefully when designing a token's feature set, value proposition, and how it's marketed. It also shows that regulators in the EU are trying to adapt and not just crack down.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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