The global rise of tokenization, powered by blockchain technology, promises revolutionary changes across industries by enabling decentralized, transparent, and efficient asset transactions. However, this innovation’s potential is often stifled by fragmented governance and jurisdictional disparities, particularly in a diverse legal ecosystem like India. This blog explores these challenges and emphasizes the need for a unified legal framework to foster seamless adoption of tokenization.
The Promise of Tokenization
Tokenization involves converting rights to an asset into a digital token, which can then be transferred, traded, or 
fractionalized. This process eliminates traditional intermediaries, reducing costs and increasing transaction speed. Applications range from real estate to intellectual property and financial instruments.
For example, as highlighted in Garcia-Teruel and Simón-Moreno’s work on digital tokens, blockchain facilitates cross-border property transactions without intermediaries, yet raises legal uncertainties concerning ownership, transfer rights, and enforcement in decentralized systemsarly, the development of a property tokenization digital framework, as discussed by Mistrangelo et al., illustrates how tokenization can promote inclusivity and sustainability in real estate markets . Such fcould be pivotal for India’s real estate sector, but jurisdictional ambiguities must first be addressed.
Global and Indian Jurisdictional Challenges
1. Legal Uncertainty Around Ownership
Globally, the legal nature of tokens—whether they represent securities, commodities, or other forms of property—remains contentious. In India, the absence of definitive laws around tokenized assets leads to uncertainty about their enforceability under the Indian Contract Act, 1872, and Transfer of Property Act, 1882.
2. Divergent Regulatory Regimes
Countries such as Singapore and Switzerland have clear regulatory approaches to tokenization, enabling robust ecosystems. In contrast, India’s lack of harmonization among regulatory bodies such as SEBI, RBI, and local governments results in fragmented governance. For instance, cryptocurrency regulations have faced repeated policy reversals, creating an unpredictable environment.
3. Cross-border Transaction Complexities
Tokenization thrives in cross-border transactions, but India’s foreign exchange laws, particularly under FEMA (Foreign Exchange Management Act), add layers of compliance that deter innovation.
4. Technological and Data Governance Barriers
Tokenization platforms rely on blockchain technology, which intersects with data governance laws like the proposed Digital Personal Data Protection Act (2023). However, interoperability and data localization requirements create additional hurdles for tokenized transactions in India.
The Case for a Harmonized Legal Framework
1. Aligning with Global Standards
Adopting best practices from jurisdictions like the EU or Singapore, India can establish clear definitions and frameworks for tokenized assets. For instance, the EU’s Markets in Crypto-Assets (MiCA) framework categorizes tokens and defines their governance, offering a template India could emulate.
2. Streamlining Regulatory Oversight
Creating a unified oversight body that integrates input from SEBI, RBI, and IT departments can ensure consistency and clarity. This would be particularly beneficial for industries like real estate and finance, which are ripe for tokenization.
3. Smart Contract Enforcement
Smart contracts underpin tokenized transactions. India’s legal framework must evolve to recognize and enforce such contracts, adapting principles of contract law to this digital medium.
4. Supporting Innovation and Inclusion
As noted by Mistrangelo et al., tokenization can democratize access to high-value assets, fostering financial inclusion . A well-defined can empower small investors while ensuring systemic safeguards.
Opportunities for Stakeholders
1. Enterprises and Technologists
Businesses can innovate around tokenization, leveraging blockchain to streamline operations. Technologists can develop interoperable platforms compliant with global and Indian regulations.
2. Academics and Researchers
Scholars have the opportunity to contribute comparative analyses of tokenization frameworks across jurisdictions, addressing gaps in Indian legal literature.
3. Bureaucrats and Policymakers
Policymakers can lead reforms by engaging with industry stakeholders and learning from global best practices, ensuring India remains competitive in the digital economy.
Conclusion
The adoption of tokenization in India hinges on resolving governance and jurisdictional disparities through a harmonized legal framework. Such reforms would not only enable seamless digital transactions but also position India as a global leader in blockchain innovation. The time to act is now, ensuring that the promise of tokenization is realized in a fair, inclusive, and sustainable manner.
References
⦁ Garcia-Teruel, R. M., & Simón-Moreno, H. (2021). The digital tokenization of property rights: A comparative perspective. Computer Law and Security Review, 41, 105543. ⦁ Mistrangelo, P., Tagliabue, L. C., & Tezel, A. (2022). Property tokenization digital framework for inclusive and sustainable asset markets development. Proceedings of the European Conference on Computing in Construction, EC3. ⦁ Lo, Y. C., & Medda, F. (2020). Assets on the blockchain: An empirical study of Tokenomics. Information Economics and Policy, 53, 100881.
