Tokenization Law
With the advancement of technology, not only tangible assets but also intangible assets can be created and transmitted from one point to another through various technological methods. Therefore, the classical understanding of law must adapt to these innovative technological developments. For this reason, new legal concepts are being developed alongside emerging technologies.
What is Tokenization?
Tokenization refers to the process of creating a digital representation of a tangible or intangible asset or a right by using blockchain technology. This digital representation is generally referred to as a “token” and may represent rights related to a specific asset, receivable, income, or governance.
From a legal perspective, tokenization constitutes the registration or certification of a right in a digital environment.
The legal nature of tokens varies depending on the type of right they represent:
- Utility Tokens: Provide access to a platform or the right to benefit from a service.
- Security Tokens: Represent an equity interest or a claim (evaluated within the scope of capital markets law).
- Payment Tokens: Used as a means of exchange.
Legally, tokenization does not represent the asset or right itself, but rather the digital representation of the powers and entitlements associated with that asset or right. Therefore, tokenization does not create new rights; instead, it enables existing rights to circulate through a new technological medium.
The Importance of Tokenization for the Financial System
The importance of tokenization for the financial system is evident in its ability to increase asset liquidity, reduce transaction costs, and broaden the investor base. Assets that are difficult to divide or transfer within the traditional financial system can, through tokenization, be fractionalized and offered to a wider range of investors.
In addition, tokenization enhances transparency and traceability in financial markets. Thanks to the distributed ledger structure provided by blockchain technology, transactions become retrospectively verifiable, creating a significant advantage in terms of market security. However, these technical advantages may also give rise to serious risks for the financial system if legal certainty is not ensured.
The Impact of Tokenization on Financial Markets
Tokenization may have both positive and negative effects on financial markets. While its positive effects have been addressed above, its negative impacts are particularly evident in terms of legal concerns such as informality and money laundering.
For this reason, within the scope of combating money laundering, common frameworks and points of action have been established through international regulations and cooperation mechanisms such as the Anti-Money Laundering Directive (AMLD) and the Financial Action Task Force (FATF). These efforts aim to ensure the proper functioning of financial markets.
Differences Between Tokenization and Crypto Assets
Although tokenization is often confused with the concept of crypto assets, these two concepts are not legally identical. Crypto assets are generally defined as digital assets that possess economic value in themselves without being based on any tangible or legal underlying asset.
In contrast, tokenization is essentially a digital representation mechanism built upon an underlying asset or right.
In Turkish law, crypto assets are defined with an emphasis on not being a means of payment, and tokenization lies at the boundaries of this definition. Although a tokenized asset is created using crypto asset technology, it is generally not a means of payment but rather an investment or representation tool. Therefore, it is not legally accurate to conclude that tokenization is automatically subject to the crypto asset regime.
This distinction is particularly important in terms of taxation, inheritance, enforcement, and insolvency law. The proper determination of the legal nature of a token directly affects which branch of law and which legislation will apply.
Legal Issues Faced by Tokenization
The most fundamental issue faced by tokenization under Turkish law is the absence of a clear and comprehensive legal framework. Currently, tokenization is addressed in a fragmented manner within the scope of capital markets law, law of obligations, property law, and anti-financial crime regulations. This situation leads to significant uncertainties in practice.
In particular, in cases where ownership rights are tokenized, it is debatable to what extent the token holder possesses real (in rem) rights. The numerus clausus principle of property law does not allow the creation of new types of real rights through tokenization. Therefore, tokenization often remains at the level of a contractual (obligational) transaction and does not grant in rem rights to the investor.
Another major issue is that token issuances are often carried out without being subject to traditional prospectus and disclosure obligations, resulting in insufficient investor protection. Furthermore, the transfer of tokens in secondary markets—especially through unauthorized platforms—may give rise to serious legal and criminal risks.
Finally, within the scope of anti-money laundering obligations, ensuring that tokenization activities comply with regulations on combating money laundering and the financing of terrorism constitutes another important challenge.
Smart Contracts and the Law of Obligations Dimension
Smart contracts, which form the technical infrastructure of tokenization, should be evaluated within the framework of the principles of “declaration of intent” and “freedom of contract” under the Turkish Code of Obligations. For a smart contract to be binding, it is crucial whether the code accurately reflects the true intention of the parties.
From a legal perspective, the “code is law” approach may not always be compatible with the Turkish legal system. In cases of error or fraud in a contract, the immutable nature of blockchain transactions makes the practical application of legal remedies such as specific performance or rescission difficult. This situation may lead to conflicts between blockchain records and court judgments.
Tokenization in Terms of Inheritance and Enforcement Law
The transfer of tokens through inheritance represents one of the most concrete examples of the concept of “digital inheritance.” Since tokens are protected by private keys, heirs may be technically unable to access these assets.
Legally, tokens—being transferable assets—can be included in the estate and may be subject to seizure for debts. However, in cases where the debtor does not share the digital wallet key, there is currently no established practice on how enforcement authorities can convert such assets into cash.
Therefore, it is necessary to either expand the scope of enforcement and bankruptcy legislation to cover digital assets or to regulate the procedures for such transactions through secondary legislation.
Tokenization is not only a financial instrument but also a revolutionary technology in terms of tracking and transferring rights. For the Turkish legal system to keep pace with this development, it is necessary to update the definition of “property” to include digital assets, introduce flexibility into capital markets legislation to allow tokenized issuances, and clarify the legal status of smart contracts in terms of evidentiary law.
Av. Mert Ali Bulut
İstanbul Barosu’na kayıtlı avukattır.
Eğitim
Galileo Galilei İtalyan Lisesi mezunudur. İstanbul Bilgi Üniversitesi Hukuk Fakültesi ve Avrupa Birliği İlişkileri bölümlerinde çift anadal yapmıştır. Aynı üniversitede Ekonomi Hukuku alanında yüksek lisans eğitimini “Eser Sözleşmesi Kapsamında Yapı Alacaklısı İpoteği” başlıklı tez çalışması ile tamamlamıştır.
Uzmanlık Alanları
- Şirketler Hukuku
- İş Hukuku
- Sözleşmeler Hukuku
- Ceza Hukuku
- İdare Hukuku
- İcra ve İflas Hukuku
- Gayrimenkul Hukuku