The research team, led by scholars from Université Mohammed V de Rabat and United Arab Emirates University, analyzed the regulatory models of Switzerland, the European Union, the United Arab Emirates and the United States through a Law and Economics lens, treating each legal framework as a dynamic incentive system designed to minimize institutional transaction costs. The stakes are far from academic. By 2025, the total capitalization of crypto-assets exceeded $4 trillion, and stablecoin transfer volumes reached an unprecedented $27.6 trillion—a volume that surpasses the combined processing power of the world’s largest traditional credit networks. Tokenization, the authors conclude, is no longer a niche experiment but an infrastructure challenge to the legal foundations of global finance.

At the heart of the study is a deceptively simple question of ontology: what, legally speaking, is a token? Technically, a token is nothing more than a cryptographically secured entry in a decentralized database managed by a network of nodes. Yet through the mechanism of representation, that entry can stand for a stake in a company, a share of a building, a debt security or a digital currency. The researchers distinguish three structural configurations. In direct tokenization, the token is itself the legal instrument, so an on-chain transfer equals an immediate and absolute transfer of ownership—the pinnacle of compliance by design. In indirect tokenization, the token represents rights over an intermediary such as a special purpose vehicle, reintroducing traditional counterparty risk. In the “digital twin” model, the token is merely an informational mirror with no independent legal force, offering minimal efficiency gains.

Whether a token can count as property in the strict legal sense is not a pedantic debate. That classification is the linchpin for creating perfect security interests, recovering assets when a custodian goes bankrupt, and building a liquid secondary market. Skeptics such as legal scholar Stevens argue that digital assets resist classical property doctrines: unlike a physical object, a private key is information that can be copied or secretly appropriated without the original holder being physically dispossessed. Yet legislatures and courts are increasingly overriding this hesitation. Switzerland’s DLT Act of 2021 created “DLT uncertificated securities” in its Code of Obligations, elevating the distributed ledger to a legally recognized support for rights equal in standing to traditional registries. The Dubai International Financial Centre’s Digital Assets Law of 2024 goes further, declaring in Article 15 that control of a private key is the functional equivalent of physical possession. In England, the High Court’s decision in D’Aloia v. Persons Unknown signaled that blockchain assets can be protected by civil injunctions even before their classification is definitively settled.

The technological machinery of “lex cryptographia”—code that enacts and enforces rules—has advanced dramatically. Smart contracts, self-executing programs running on platforms like the Ethereum Virtual Machine, hard-code contractual terms so that settlement, asset servicing and governance occur without manual intervention. Permissioned enterprise ledgers such as Hyperledger Fabric and Corda can process upward of 3,000 transactions per second, meeting the demands of capital market infrastructure while providing the confidentiality that public chains lack. The state of the art for institutional security tokens is the ERC-3643 standard, which decouples investor identity from the token through the ONCHAINID system: investors receive digital identities carrying encrypted Know Your Customer attestations from accredited providers, and Zero-Knowledge Proofs allow the protocol to verify compliance attributes such as qualified investor status without exposing personal data on a public ledger.

The economic payoff of this architecture comes from atomic settlement. In on-chain Delivery versus Payment at T+0, smart contracts sequester both the tokenized security and the digital cash in a digital escrow, executing the exchange entirely or not at all according to the ACID principles of distributed databases. This eliminates the settlement window that plagues traditional markets, where two-day (T+2) cycles generate, by industry estimates from Goldman Sachs and Banco Santander, annual infrastructure costs of $11 billion to $20 billion through immobilized capital, margin calls and lingering counterparty risk. But there is a catch, and it is the study’s central systemic finding: the automation breaks if the cash leg still relies on legacy banking rails such as SWIFT or TARGET2. Without a wholesale central bank digital currency, the promise of instantaneous, risk-free settlement remains functionally incomplete.

The four jurisdictions studied embody strikingly different answers to these challenges. Switzerland represents radical legal integration: its DLT Act makes an on-chain inscription a transfer of ownership enforceable against all, and Project Helvetia demonstrated that tokenized assets can be settled atomically in wholesale central bank digital currency. The European Union has instead chosen supervised experimentation, with a six-year DLT Pilot Regime capped at EUR 6 billion in aggregate capitalization—a limit critics consider too timid to attract major institutions—and, crucially, no wholesale CBDC, forcing reliance on stablecoin substitutes that reintroduce bank counterparty risk. The United Arab Emirates pursues competitive specialization through its financial free zones: the DIFC codifies private-key possession and guarantees clients priority reclamation of assets in insolvency, while Abu Dhabi’s ADGM has legally validated “governance by code,” allowing a DLT Foundation’s rules to live inside smart contracts, and the central bank is actively piloting a digital dirham. The United States remains the fragmented outlier, split between the SEC and CFTC and still governed by the 1946 Howey test; the GENIUS Act of July 2025 imposes 1:1 reserve requirements on stablecoin issuers but does not take effect until 2027 at the earliest.

Despite these divergences, the study identifies powerful functional convergences. Every jurisdiction now applies a “substance over form” principle, qualifying tokens by their economic reality rather than their label—a token marketed as a utility asset that pays dividends will be requalified as a security, with consequences ranging from nullity of issuance to criminal sanctions. Programmable standards like ERC-3643 and ERC-1400 are becoming a common on-chain language across legal traditions, and Multi-Party Computation has emerged as the global custody standard, fragmenting private keys across independent parties so that no single entity ever holds the complete secret. These cryptographic safeguards, the authors note, were hardened by catastrophic failures such as the 2022 collapse of FTX, where billions in client funds were misappropriated in the absence of legally robust asset segregation.

Yet three structural locks still hold systemic adoption back. The monetary lock is the absence of operational wholesale central bank digital currencies: although the Bank for International Settlements, the Banque de France and Project Helvetia have proven the technology works, deployment depends on sovereign monetary policy decisions beyond the reach of financial regulators. The contractual lock lies in the stablecoin market itself, where analysis of the terms of dominant issuers like Tether and Circle reveals limited redemption access, broad liability disclaimers, and legal characterizations that would likely relegate holders to unsecured creditor status in a bankruptcy—a first-order systemic risk in a market representing over 80% of stablecoin capitalization. The regulatory fragmentation lock, finally, keeps cross-border payment corridors slow and expensive even as most organizations experiment with stablecoin payments. The researchers also flag the collapse of the algorithmic stablecoin Terra USD, which evaporated $45 billion in 72 hours in 2022, as the definitive caution against automated arbitrage without tangible reserves.

The study’s conclusion is stark and, for the tokenization industry, humbling: tokenization does not yet constitute an autonomous “on-chain” financial law. Code is a powerful executor of rights, but it cannot create them; it presupposes their existence within a broader legal order. The jurisdictions that most successfully reduce institutional transaction costs—Switzerland and the DIFC—are precisely those that have permanently and explicitly aligned their positive law with on-chain realities. Until wholesale central bank money, robust insolvency protections and coherent cross-border rules catch up, the future of tokenized finance will be decided not by the sophistication of its protocols but by the willingness of sovereign legal systems to meet the code halfway.

Subject of Research: Legal and economic analysis of financial instrument tokenization across four regulatory regimes

Article Title: Compliance by design or law by decree? A comparative analysis of the tokenization of financial instruments

Article References: Sadok, H., Kassimi, S., AlQodsi, E. M., El Hadi El Maknouzi, M., Jadalhaq, I. M., & Alshawabkeh, I. (2026). Compliance by design or law by decree? A comparative analysis of the tokenization of financial instruments. Frontiers in Blockchain, 9, Article 1934036. https://doi.org/10.3389/fbloc.2026.1934036

Image Credits: AI Generated

DOI: 10.3389/fbloc.2026.1934036

Keywords: tokenization, blockchain, smart contracts, stablecoins, central bank digital currency, financial regulation, Swiss DLT Act, MiCA, DLT Pilot Regime, GENIUS Act, compliance by design, systemic risk

The technical architecture of the e-CNY helps explain why it can serve inclusion goals that conventional digital payments cannot. Unlike decentralized cryptocurrencies, the digital renminbi is a direct liability of the central bank, issued through a two-tier system in which the PBOC distributes the currency to commercial banks and licensed operators, who then place it in the hands of consumers and businesses. This structure preserves the role of existing financial institutions while giving the central bank a unified, state-backed digital cash instrument. The e-CNY is designed to pay for consumer retail and service transactions, civil servants’ wages, utility bills, and company-to-company exchanges, and it has been rolled out through large-scale pilots in cities including Shenzhen, Suzhou, and Shanghai, including lottery-style giveaways such as a three-million-yuan distribution in Suzhou that introduced millions of residents to the new wallet technology.

One of the most technically distinctive features of the e-CNY is its support for offline payment. In trials documented in Shenzhen, users could complete transactions in a ‘touch and pay’ mode even when neither device had network connectivity, using near-field communication between hardware wallets. This matters enormously for inclusion because network coverage, smartphone ownership, and battery life are precisely the barriers that exclude many vulnerable users from mobile payment systems. The PBOC and its corporate partners extended this logic to dedicated hardware: a ‘hard wallet’ card program was launched so that people without smartphones at all could hold and spend digital yuan, and Huawei’s Mate 40 series shipped with a built-in hardware wallet for the currency. Mu Changchun, the head of the PBOC’s digital currency research institute, has publicly framed the goal as providing an inclusive and easy-to-use digital central bank currency, a commitment the study treats as central rather than incidental to the project.

The rural dimension of this strategy is where the study’s findings become most vivid. China’s countryside has historically been underserved by bank branches, a gap that the Postal Savings Bank of China, with its vast network of rural outlets, has long worked to narrow. Pilot reporting from 2021 described tests of the digital yuan in villages, and analysts noted the introduction of a phone-free e-RMB card explicitly aimed at helping the rural poor. The policy context is the CCP’s longstanding ‘sannong’ agenda, referring to agriculture, farmers, and the rural countryside, which has made rural finance a recurring political priority. By pairing the e-CNY with card-based hardware and offline functionality, the PBOC effectively built a payment instrument that works for a farmer without a smartphone just as well as for an urban professional with the latest device.

Elderly citizens form the second major target group, and the design choices here are equally revealing. China’s aging population includes millions of people who find smartphone apps confusing or inaccessible, a problem that became acute as the country’s dominant private payment platforms made daily commerce increasingly app-dependent. The e-CNY’s hardware wallets, simple card interfaces, and offline modes offer a state-backed alternative that does not require downloading an application, managing a password, or maintaining an internet connection. The study emphasizes that the PBOC directed this design orientation during the pilot phase itself, meaning inclusion was not an afterthought bolted onto a finished product but a requirement shaping the engineering from the start. That is a notable departure from the pattern in many countries, where central banks treat inclusion as one consideration among many, and where private fintech innovation tends to serve the connected and creditworthy first.

Why would the world’s second-largest economy invest so heavily in a retail CBDC when it already has near-universal private mobile payments? Chin’s analysis points to a combination of motivations. Domestically, the e-CNY gives the state a payment rail it controls, reducing dependence on a small number of private platform companies and providing a public option in digital money. Internationally, Chinese policymakers and analysts have framed the project in terms of currency competition in the digital era and the long-term prospect of renminbi internationalization, although the study notes that the link between a retail CBDC and international currency status remains debated among Chinese economists themselves. There is also a standards dimension: China has proposed global rules for central bank digital currencies, positioning itself as a rule-shaper at the frontier of the technology rather than a follower.

The international spillovers are already visible. Hong Kong began allowing the digital yuan to be used in local shops in 2024, marking the first time the e-CNY crossed a border for everyday retail use. Chinese technology firms with deep telecommunications infrastructure across Africa have been identified by analysts as potential channels for digital currency adoption on the continent, and commentators have described China as leading Africa’s digital currency race. The Bank for International Settlements and the International Monetary Fund have both published extensive research on CBDCs as a potential new tool in the financial inclusion toolkit, and the e-CNY now serves as the most extensive real-world test case for the propositions in that literature. Agustín Carstens, the BIS general manager, has argued that the design of digital currencies touches on the very nature and soul of money, and China’s experiment is providing the empirical evidence for that debate.

The study also documents the scale and pace of adoption. PBOC governor Yi Gang reported in 2023 that e-CNY transaction volumes were seeing strong momentum, and by that point the pilots had expanded to dozens of cities across multiple provinces, covering payroll disbursements, transit, retail, and government services. The corporate ecosystem involved is broad: more than twenty companies were identified as participants in the underlying DC/EP development effort, spanning state banks, telecommunications operators, and technology firms. This public-private division of labor, in which the central bank owns the currency and the core ledger while partners build wallets, acceptance networks, and hardware, is itself a technical and institutional innovation that other central banks studying CBDC design are watching closely.

Still, the research is careful about limits and open questions. Rural adoption faces real challenges, including digital literacy gaps, merchant acceptance in low-density areas, and the persistence of cash preferences among some users, issues that Chinese industry reporting on the state of the e-CNY in rural areas has highlighted. The study does not claim that the digital yuan has solved financial exclusion, only that the PBOC has directed its design toward that goal with unusual seriousness. Whether offline cards, hardware wallets, and two-tier distribution can overcome the entrenched economics of rural banking remains to be seen, and the interplay between the e-CNY and the dominant private payment platforms is still evolving.

What the research ultimately establishes is that the global frontier of central bank digital currency is no longer theoretical. China has moved from concept to mass pilots to cross-border retail use, and it has done so with an explicit inclusion mandate for the elderly, the rural poor, and the unbanked. For the more than one hundred central banks now weighing their own digital currencies, the e-CNY offers the first large-scale demonstration that a CBDC can be engineered not just for efficiency or control, but as a deliberate instrument for bringing the financially marginalized into the formal economy. How well that engineering holds up in the villages and among the aging millions it was designed to serve will shape the next decade of monetary innovation worldwide.

Subject of Research: China's digital renminbi (e-CNY) central bank digital currency and its role in financial inclusion

Article Title: China’s ‘digital renminbi’ (e-CNY) as financial inclusion: the global frontier of central bank digital currency

Article References: Chin, G. T. (2025). China’s ‘digital renminbi’ (e-CNY) as financial inclusion: the global frontier of central bank digital currency. Global Public Policy and Governance, 5(1), 63-81. https://doi.org/10.1007/s43508-025-00112-0

Image Credits: AI Generated

DOI: 10.1007/s43508-025-00112-0

Keywords: central bank digital currency, digital renminbi, e-CNY, People's Bank of China, financial inclusion, China, offline payments, hardware wallet, rural finance, unbanked, monetary policy, fintech