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A mature legal framework?
Much has been written about Luxembourg’s so-called “blockchain laws”, adopted between March 2019 and December 2024. These laws amended existing laws (in particular the law of 1 August 2001 on the circulation of securities, the law of 6 April 2013 on dematerialized securities, the law of 5 April 1993 on the financial sector, and the law of 5 August 2005 on financial collateral arrangements) in order to gradually introduce the use of distributed ledger technology (DLT) in the Luxembourg legal framework and also implement the provisions of the European Union’s DLT Pilot Regime under Regulation (EU) 2022/858.
Issuers of security tokens (i.e., tokens qualifying as financial instruments within the meaning of MiFID II) may now rely on a legal framework which recognizes financial instruments issued on DLT as well as the holding and transfer of securities via DLT, including debt and equity securities (such as shares and fund units). Financial instruments registered on DLT may be used as collateral and relevant providers may operate trading and settlements systems on DLT.
Luxembourg is therefore well-equipped to deal with issuances of digital assets.
For tokens which do not qualify as financial instruments, Regulation (EU) 2023/1114 on markets in crypto-assets (MiCAR), which is applicable since 30 December 2024, now offers a comprehensive legal framework for the issuance of such tokens and the provision of related services (custody, exchange, RTO, advice, portfolio management, etc.).
Luxembourg is therefore well-equipped to deal with issuances of digital assets, although some blind spots remain, including in relation to the tax qualification of security tokens, the limited secondary market opportunities, and cash-on-chain options in the EU. In this respect, a report published by the Bank for International Settlements in April 2025 (BIS, Consultative Group on Innovation and the Digital Economy, Leveraging tokenisation for payments and financial transactions) also points out that further work must be done on interoperability of tokenized systems between each other and with other financial systems and on safe settlement. In Luxembourg, some adjustments may also still be required in relation to registered securities and the maintenance of share registers on DLT for instance.
Issuers now have a clear legal basis for tokenisation, but need to consider projects carefully
Issuers need to distinguish between security tokens which, other than the fact that they are issued on DLT, fall within the scope of traditional corporate and security laws and other digital assets with are subject to MiCAR. The issuance of a security token involves additional complexity due to the additional technology layer involved (notably the programming of the smart contracts) but remains otherwise subject to typical issuance requirements such as the potential need for a prospectus under the EU’s Prospectus Regulation, unless exemptions apply.
Potential issuers must also consider their target market and the benefits sought through tokenisation, as tokenisation may not be suitable for all scenarios and can be costly. In addition, they must ensure that they are able to trust or audit the smart contracts involved and ensure that (i) the smart contracts are indeed fit for the intended issuance and (ii) the terms of the smart contracts match the terms of and disclosures made in the relevant issuance documentation.
Depending on the envisaged structure, different legal and regulatory frameworks may be triggered, such as securitization rules, investment funds regulations, or requirements applicable to crowdfunding. Tokenisation in so far as it concerns financial instruments can therefore not be considered in isolation but goes hand in hand with traditional financial regulation.
The Luxembourg tokenisation ecosystem starts to take shape, but opportunities for development remain
Luxembourg benefits from the presence of well-established technology providers, and new players are entering the market with tokenisation projects (such as tokenised funds or real estate) or related services such as custody of digital assets. Recent mediatized examples include the arrival of Standard Chartered to provide cryptocurrency and digital assets custody services, the launch of a tokenised UCITS fund, or the collaboration between LetzToken and Olky Group to create LetzOlky, a new tokenisation platform.
Luxembourg benefits from the presence of well-established technology providers.
Although the arrival of new market players is to be welcomed, existing financial services providers will also need to review their current business models and adapt their service offering and licenses in order to adapt to the new market reality and jump on the bandwagon. Investment and education are key to ensure that the opportunities offered by the new digital asset landscape are not missed and to make Luxembourg a credible contender in this space.
This article was first published by Paperjam.
