The Next Five Years of Tokenization Policy: What to Watch

The period from 2026 to 2031 will determine the basic architecture of tokenization regulation for a generation. The frameworks being finalized now — in Washington, Brussels, London, and Beijing — will shape what can be built, where capital flows, and which jurisdictions lead the global digital finance system. Here is what to watch.

The CLARITY Act: Will It Pass the Senate?

The CLARITY Act, building on the foundation of FIT21, passed the House with significant bipartisan support. Its fate in the Senate is less certain. The key sticking point remains jurisdictional: the Act would give the CFTC primary jurisdiction over crypto commodity spot markets, a transfer of authority that the SEC has resisted since the question was first raised.

Senate Banking Committee dynamics matter enormously here. The committee has historically been protective of SEC jurisdiction, and any legislation that reduces the SEC’s regulatory perimeter faces headwinds from committee members who view the SEC as the appropriate regulator for instruments that reach retail investors. The CLARITY Act’s decentralization test — which determines whether a token is a commodity or a security based on the degree of decentralization of its network — remains technically contested, and the SEC has argued that most tokens fail the test.

The most likely path to Senate passage involves either a negotiated compromise on the jurisdictional question, perhaps giving the SEC concurrent authority over certain activities, or a broader political deal that trades crypto clarity for other financial legislation priorities. If the Senate passes a modified version, the conference process between House and Senate versions will be the critical moment.

The stakes are high. A signed CLARITY Act would provide the most comprehensive legal clarity for digital asset classification in US history and would likely trigger a wave of institutional activity. Senate failure would leave the US in a continued state of regulatory uncertainty, with enforcement as the primary mode of regulatory interaction.

The Digital Euro: 2029 Launch?

The European Central Bank is targeting a potential digital euro launch in 2028-2029, subject to the completion of the legislative framework and technical infrastructure. The timeline is ambitious but not implausible — the ECB has been conducting preparatory work since the investigation phase began in 2021.

The key variables are legislative and political rather than technical. The digital euro regulation must pass the European Parliament and the Council, and the privacy provisions remain politically contested. If the ECB can credibly commit to meaningful privacy protections — particularly offline anonymity for small transactions — the political obstacles are surmountable.

Watch for the limit on individual digital euro holdings, which the ECB has indicated will be set at a level designed to prevent the digital euro from destabilizing the commercial banking system by enabling large-scale deposit disintermediation. The ECB’s current thinking is a holding limit of €3,000 per person, though this figure will be politically contested by banks that want a lower limit and financial inclusion advocates who want no limit.

CARF: Will the US Join?

The OECD’s Crypto-Asset Reporting Framework (CARF) is the international standard for automatic exchange of tax information on crypto transactions, modeled on the Common Reporting Standard for traditional financial assets. The OECD has been working with jurisdictions to implement CARF, with reporting beginning in some jurisdictions in 2027.

The US has historically been reluctant to adopt reciprocal automatic information exchange — the Foreign Account Tax Compliance Act (FATCA) requires foreign institutions to report US person accounts to the IRS, but the US does not reciprocate by sending information about foreign persons to their home governments. CARF creates pressure for the US to join a genuinely reciprocal system.

US participation in CARF would be significant for two reasons. First, it would close a major gap in global crypto tax enforcement — the US is the domicile of many of the world’s largest crypto exchanges, and non-participation creates an obvious haven for foreign tax evaders. Second, US participation would effectively require all major exchanges serving US customers to implement the full CARF reporting infrastructure, which has substantial compliance implications for the industry.

DeFi Regulation: Which Jurisdiction Moves First?

No major jurisdiction has yet implemented comprehensive regulation of decentralized finance protocols. The fundamental challenge — that DeFi protocols operate through smart contracts without identifiable operators subject to regulatory jurisdiction — has not been resolved. IOSCO and the FSB have both published analysis of DeFi risks, but analysis has not yet translated into binding regulatory requirements.

The question is which jurisdiction will move first with something more than guidance. The EU’s MiCA explicitly excludes fully decentralized services, but MiCA Level 2 work and ESMA guidance have been probing the edges of that exclusion. The US CFTC has brought enforcement actions against DeFi protocols, asserting that the developers or governance token holders constitute an association subject to commodity law. These enforcement actions are shaping a body of case law, but they are not a legislative framework.

The most likely first mover is a jurisdiction with both a significant DeFi ecosystem and a regulator willing to act: the US (through enforcement action that effectively creates rules), the UK (through FCA guidance that narrows the decentralized services exclusion), or potentially Singapore (through MAS guidance that creates compliance pathways for DeFi protocols willing to implement them).

AI and Crypto: Dual Compliance Under EU AI Act and MiCA

The intersection of artificial intelligence and crypto is creating a new compliance challenge that has not yet been fully mapped. AI systems used in crypto trading, risk management, wallet management, or asset tokenization may fall under the EU AI Act’s requirements for high-risk AI systems — which include financial services applications. Simultaneously, the platforms deploying those systems may be subject to MiCA’s CASP requirements.

Dual compliance — meeting both the EU AI Act’s transparency, explainability, and risk management requirements and MiCA’s operational resilience and governance requirements — is theoretically achievable but practically demanding. The question is whether regulators will issue coordinated guidance or whether firms will be left to navigate conflicting requirements from ESMA (MiCA) and national market surveillance authorities (AI Act) independently.

This intersection will become more important as AI-driven automated market makers, AI-powered lending protocols, and AI-curated tokenized asset portfolios become more prevalent. Watch for ESMA and the AI Office to either coordinate on this question or to create compliance friction that advantages larger institutions with the resources to navigate complex dual regimes.

BRICS Unit: Scale or Stall?

The BRICS Unit — a proposed common currency or payment settlement mechanism for BRICS countries — has been under discussion since the 2023 BRICS summit. Progress has been slower than initial announcements suggested. Russia’s motivation (avoiding dollar-denominated sanctions) is different from India’s (reducing dollar dependence while maintaining market access) and different again from China’s (internationalizing the renminbi). These divergent interests make the BRICS Unit difficult to design.

The more consequential development may be bilateral: China and Russia have already expanded RMB settlement of energy trade, and several BRICS economies are developing bilateral local currency payment corridors. A formal BRICS Unit may not emerge, but the fragmentation of dollar dominance in trade finance is already underway.

RWA Tokenization: $18.9 Billion to $1 Trillion?

Real-world asset tokenization was valued at approximately $18.9 billion in on-chain assets in early 2026, with tokenized US Treasuries accounting for the largest share. Projections from major financial institutions suggest the market could reach $1 trillion by the end of the decade, driven primarily by private credit, real estate, and infrastructure.

The regulatory question is whether the frameworks being developed now — CLARITY Act in the US, MiCA and the DLT Pilot Regime in the EU, FSMA 2023 in the UK — will be sufficiently clear and sufficiently interoperable to support this growth. Fragmented regulation that requires separate compliance for each jurisdiction creates frictions that the projected market size assumes away.

Four Scenarios to 2031

Regulatory Convergence: CLARITY Act passes, IOSCO standards are widely adopted, CARF global membership expands, and a de facto global framework emerges through coordination. Institutional RWA tokenization scales significantly. Most likely if US provides legislative clarity and G20 maintains coordination.

Regulatory Fragmentation: US fails to pass comprehensive legislation, MiCA creates a distinct European perimeter, UK pursues active divergence, and Asia fragments among Singapore, Hong Kong, Japan, and UAE competing for business. Crypto activity concentrates in permissive jurisdictions; institutional adoption is slower than projected.

US Leadership: CLARITY Act passes with strong CFTC framework, US dollar-denominated stablecoins dominate global crypto markets, and US regulatory approach becomes the global template. Geopolitically aligned with dollar dominance strategy.

Chinese Dominance: e-CNY achieves significant cross-border adoption through Belt and Road trade corridors, BRICS payment infrastructure reduces dollar dependence, and the digital yuan becomes the settlement currency for a substantial share of global trade. Requires significant geopolitical realignment.

The period to 2031 will not produce a single winner. More likely, we will see continued divergence between a US-dominated crypto capital market, a European regulated framework with strong investor protection but limited innovation, and an Asian system that includes both sophisticated regulatory environments and jurisdictions that compete on light-touch frameworks. The question for tokenization policy is whether these systems will be interoperable or whether firms will be forced to choose.