Recent news has highlighted Token Trust and the possibility of opening capital markets to SMEs through the tokenization of financial assets. As one of the company’s founders and its CTO, I am writing this article with the added responsibility of explaining precisely what is at stake, what is not yet in place, and why this development will be strategically important for the Portuguese and European economies.
Let us begin with an essential point. Token Trust is not yet engaged in any regulated activity. The company is currently undergoing the authorization process with the Portuguese Securities Market Commission (CMVM) to operate as an investment firm and as a DLT trading and settlement infrastructure under the European Union’s DLT Pilot Regime, established pursuant to Decree-Law No. 109-H/2021 and Regulation (EU) 2022/858. Until the CMVM issues its formal decision, which includes a non-binding opinion from the European Securities and Markets Authority (ESMA), no regulated activity is being carried out. This distinction matters because, in genuine financial markets, words carry legal rights, obligations, and responsibilities.
The key issue is what the term tokenization means once it enters the realm of financial regulation. For years, tokenization has been associated with crypto-assets, decentralized finance (DeFi), virtual currencies, NFTs, or rather vague promises linked to real-world assets. Some of these initiatives have been innovative, others have proven risky, but all have existed outside the regulated financial system. Tokenizing a regulated financial asset is something entirely different. It is not about issuing a crypto-asset that merely “represents” some form of economic promise. Rather, it is about issuing, trading, and settling financial instruments, such as shares, bonds, or fund units, together with all the legal rights attached to those instruments, while remaining fully compliant with the applicable European regulatory framework under MiFID II.
The distinction may appear subtle, but it is fundamental. The Markets in Crypto-Assets Regulation (MiCA) governs tokens exclusively as crypto-assets and also establishes rules for tokenized electronic money, including e-money tokens and the Digital Euro issued by the retail banking sector. By definition, MiCA expressly excludes all financial instruments within the meaning of MiFID II from its scope. Consequently, tokens representing regulated financial instruments, such as shares, bonds, or fund units, can never be classified as crypto-assets for the purposes of MiCA.
The MiCA Regulation has, in fact, led to the emergence of proposals for tokens that are allegedly backed by real-world assets. However, because these fall within the MiCA framework as crypto-assets, they are not equivalent to regulated financial instruments. On the contrary, anyone acquiring one of these crypto-assets, even when it is purportedly linked to real-world assets, does not enjoy the rights, protections, or legal status of someone who owns the share, bond, or fund unit that the asset claims to represent. Under the MiCA framework, this type of token amounts to no more than a form of crowdfunding investment, which is fundamentally different from investing in regulated financial instruments. The two regimes are therefore based on entirely different legal foundations and provide markedly different levels of investor protection.
It was the DLT Pilot Regime that made it possible to convert book-entry financial assets into DLT-based assets. As clarified by Decree-Law No. 66/2023, this, and only this type of token, may be granted the legal status of book-entry securities corresponding to certificated securities under Article 50 of the Portuguese Securities Code, covering shares, bonds, and fund units.
DLT stands for distributed ledger technology, of which blockchain is the best-known and most widely used example. In simple terms, it is a way of recording transactions and holdings on a shared, auditable, and tamper-resistant technological infrastructure. A DLT-TSS (Trading and Settlement System) integrates the trading and settlement of regulated financial assets within the same technological framework, rather than relying on the traditional databases of the conventional financial system. In Token Trust’s DLT-TSS design, transaction settlement is atomic. As a result, unlike the traditional financial system, ownership of the security is transferred to the buyer at exactly the same moment that payment is transferred to the seller. This may sound like a technical detail, but it is not. It represents a dramatic reduction in friction, operational risk, and settlement time.
Today, friction is one of the major invisible barriers in capital markets. For a large corporation, issuing bonds is a standard financing tool. For an SME, however, it is almost always out of reach. This is not because SMEs lack financing needs or worthwhile projects, but because the traditional capital markets infrastructure involves substantial fixed costs, multiple intermediaries, and a level of complexity that only makes economic sense for large-scale issuances. In practice, the fixed-cost structure of the conventional bond market tends to favor issuances exceeding €10 million. An SME seeking between €500,000 and €1 million cannot reasonably bear the same cost structure designed for offerings many times that size.
As a result, SMEs generally turn to bank financing. Bank credit remains indispensable, but it is not equally suited to every situation. Under a traditional bank loan, once any grace period has expired, the company begins repaying principal throughout the life of the loan. This means that part of the project’s cash flow is absorbed before the project has reached economic maturity. By contrast, a large corporation can issue a coupon bond, paying periodic interest to investors while repaying the principal only at maturity. Technically, this is known as a coupon bond with a bullet repayment structure, meaning that the principal is repaid in full only when the bond matures.
The difference is highly significant. Consider an SME undertaking an industrial expansion or a real estate development project. The project may have strong value creation potential, but it requires time to generate returns. If financed through a conventional bank loan, the company must begin servicing the full debt at an early stage. If, instead, it can issue a coupon bond with principal repayment at maturity, it benefits from a financing structure that is far better aligned with the project’s economic cycle, paying only interest throughout the agreed term and repaying the principal once the underlying asset has had sufficient time to generate returns.
Consider the following example. A Special Purpose Vehicle (SPV) seeks to raise €5 million to finance a construction project. An SPV is a legal entity established to isolate a specific project, together with its risks, assets, and cash flows. Rather than incorporating everything into the balance sheet of a larger company, a separate vehicle is created exclusively for that purpose. That SPV could issue a tokenized bond while complying with all applicable regulations and benefiting from the prospectus exemptions available for smaller offerings.
An SPV is not a form of financial magic. The project’s risks remain, and investors must still assess the issuer, the quality of the information provided, the collateral, the maturity, the interest rate, the governance framework, and the instrument’s liquidity. Regulation and supervision remain essential, as they should. What changes is that the new infrastructure becomes economically viable even for smaller projects.
This is why the regulated tokenization of financial assets matters for SMEs. Not because it turns every project into a good investment, eliminates risk, or replaces banks, investors, regulators, or financial analysis. Its true value lies in making capital markets more accessible, more granular, faster, more transparent, more secure, and better suited to the real scale of the European economy.
For years, the European Union has been discussing the Capital Markets Union, the need to channel savings more effectively into the real economy, and the excessive reliance of European businesses on bank financing. The difficulties SMEs face in accessing capital market instruments have also been widely recognized. All of this is true, but the solution will not come from political declarations alone. It will come from a new financial infrastructure because, without the right architecture, strategy remains nothing more than words on paper.
This is where a DLT-TSS becomes truly important, not as a passing trend, a marketing concept, or another crypto promise. Its value lies in reducing fixed costs, shortening settlement cycles, improving auditability, enhancing the traceability of ownership rights, and enabling smaller issuances to be handled efficiently and economically. Technology alone does not create trust, but it can provide a far more effective means of implementing the trust already embedded in law, regulation, and contractual arrangements.
Portugal has a unique opportunity because it can innovate where traditional economies of scale have always been a constraint. It is a country with a large SME sector, considerable entrepreneurial talent, and relatively shallow capital markets. As a result, it stands to benefit significantly from infrastructures capable of connecting savings with productive investment in a regulated and secure manner. The question is not whether we want more tokens. The question is whether we want capital markets that serve the real economy more effectively.
Once Token Trust receives its formal authorization, the company will launch its DLT-TSS. However, the broader significance extends well beyond a single company. What is at stake is the transition of tokenization from the crypto periphery into the regulated core of financial markets. It is the difference between merely promising rights and legally guaranteeing them. Between selling narratives and settling transactions within the framework of the law. Between simply envisioning a digital economy and building the legal and technological infrastructure that makes it possible.
Ultimately, the kind of tokenization that matters to SMEs is not the kind that seeks to avoid regulation. It is precisely the kind that operates within it because only that approach can transform capital markets from an exclusive club serving large-scale issuances into an infrastructure that is genuinely accessible to the businesses that create jobs, drive innovation, and generate economic growth. In the end, we are not replacing trust with computer code. We are using technology to execute trust with far less friction. And that, indeed, is what will truly transform the market.
Paulo Cardoso do Amaral, Professor at Católica-Lisbon SBE