Compliance Strategy for Tokenization of Commodities in Regulated and Emerging Environments

Camila Ovadiah; Marcia C. Rossi

DOI: 10.22167/2675-6528-202602761

Article derived from a Final Course Work (TCC), with content based on the student’s original work and adapted to the editorial format of the E&S Magazine with the support of the ResumeAI tool, an artificial intelligence solution developed by the Pecege Institute for textual synthesis and organization.

Abstract

The tokenization of real-world assets, one of the most promising applications of blockchain technology, faces significant regulatory challenges for companies in various jurisdictions. The study investigated how companies can develop effective and cost-effective compliance strategies for global expansion in the segment of fully backed physical commodity tokenization. The central problem identified was the absence of a structured compliance framework for issuers operating in regulated and emerging environments. A qualitative method of comparative normative documentary analysis was adopted, focusing on primary and official sources, organized into five cross-cutting dimensions: registration and licensing; AML/CFT; custody and backing; transparency, governance, and auditing; and regulatory costs and deadlines. Six jurisdictions were analyzed: Canada, the European Union, the United Arab Emirates (Dubai/VARA and Abu Dhabi/ADGM), Brazil, and Thailand. The results revealed two central patterns: similarities in AML/CFT obligations and significant divergences in custody, backing, and governance requirements, reflecting different stages of regulatory maturity. The UAE and the EU presented more developed frameworks for real-world asset tokenization, while Brazil, Thailand, and, to some extent, Canada offered greater regulatory uncertainty. Based on this analysis, a five-step compliance framework was proposed for issuers of tokens backed by physical commodities seeking global expansion: token classification, jurisdictional selection, backing structuring, license sequencing, and continuous monitoring.

Keywords: Transnational compliance; Compliance strategy; Crypto-asset regulation; Tokenization of real assets.

1. Introduction

The tokenization of real-world assets (RWA) emerges as one of the most promising applications of blockchain technology, enabling the digital representation of physical assets such as commodities, real estate, and financial securities. This process has the potential to democratize access to investments, increase market liquidity, and promote greater transparency in financial transactions (Xia et al., 2025). However, the implementation of this technology faces significant regulatory challenges, especially regarding compliance in various jurisdictions.

This study focuses on the tokenization of fully backed physical commodities, such as oil, gold, sugar, and meat. This market segment demands high levels of trust, traceability, and adherence to rigorous regulatory frameworks (Scharfman, 2024; Scharfman et al., 2023). Companies operating in this sector, including blockchain startups and venture capital funds, need to develop effective and economically viable compliance strategies to operate in regulated and emerging environments (Arner et al., 2020).

To address this complexity, the research is based on concepts such as RWA tokenization, with an emphasis on traceability, proof of collateral, and robust custody for commodities (Scharfman, 2024; Xia et al., 2025). Regulatory classification of the token and the set of issuer obligations in each jurisdiction are also considered (Hinman, 2018; Rohr & Wright, 2019; ESMA, 2024). Furthermore, transnational compliance strategy is essential to operate in accordance with multiple regulatory frameworks that present different degrees of maturity (Arner et al., 2020; Zetzsche et al., 2020). The study adopts a comparative normative documentary analysis, focusing on primary and official sources, organized into five cross-cutting dimensions: registration and licensing; AML/CFT; custody and collateral; transparency, governance, and audit; and regulatory costs and deadlines.

The central problem of this research lies in the absence of a structured compliance framework for issuers of tokens backed by physical commodities seeking global expansion and operating simultaneously in regulated and emerging environments. The consulted literature does not present a specific compliance framework for issuers in this segment, which represents a theoretical and practical gap (Pittaras et al., 2024; Scharfman, 2024; Zetzsche et al., 2020). This gap creates uncertainty for companies seeking to align technological innovation with legal compliance in markets such as Canada, the European Union, the United Arab Emirates (Dubai/VARA and Abu Dhabi/ADGM), Brazil, and Thailand.

The relevance of this study lies in the need to align technological innovation with legal compliance, allowing companies to expand their operations globally without compromising efficiency or innovation. The research seeks to contribute to the advancement of knowledge about the regulatory complexities of asset tokenization and offer practical solutions. Thus, the objective of this study is to analyze and compare the regulatory scenarios and compliance challenges related to asset tokenization, focusing on physical commodities, in the mentioned jurisdictions and to propose strategies that allow companies to expand their global reach efficiently and within legal parameters (FINRA, 2018; Kou et al., 2025; Scharfman, 2024; Zetzsche et al., 2020).

2. Material and Methods

This study employed a qualitative, applied, and exploratory-descriptive methodological approach, centered on comparative normative documentary analysis. The objective was to analyze and compare the regulatory scenarios and compliance challenges related to asset tokenization, with a focus on physical commodities, in six jurisdictions: Canada, the European Union, the United Arab Emirates (Dubai/VARA and Abu Dhabi/ADGM), Brazil, and Thailand. The use of primary and official sources was prioritized to reduce interpretive bias (Bowen, 2009).

Data collection consisted of a systematic survey of regulatory and official documents. Laws, decrees, regulations, supervisor guidelines, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) standards, public consultations, announcements, and technical reports issued by the regulators of the selected jurisdictions were compiled. Primary and official interpretive sources were recorded in a monitoring framework, detailing the issuing body, the identified norms, and the analytical categories covered.

For the selection of documents, inclusion and exclusion criteria were applied. Norms with binding force, official interpretive guides from regulators, and formally adopted AML/CFT documents were considered high priority. Official technical reports and public consultations were included as supporting material, providing regulatory context. Opinion articles, market blog posts, and materials without institutional authorship were used only for contextual purposes, without constituting primary regulatory evidence for the analysis.

The data analysis was structured around four conceptual axes: the tokenization of Real World Assets (RWA) backed by commodities, the regulatory classification of the token and the issuer’s obligations, transnational compliance, and comparative analysis. To ensure comparability, each document was coded according to five cross-cutting dimensions: (i) registration and licensing, (ii) AML/CFT, (iii) custody and backing, (iv) transparency, governance, and auditing, and (v) regulatory costs and deadlines. Subsequently, a cross-jurisdictional comparison was carried out.

A crucial initial step was determining the regulatory category of each commodity token in each jurisdiction, defining the competent regulatory body and applicable rules (IOSCO, 2020; Zetzsche et al., 2020). For analytical purposes, the premise was adopted that tokens fully backed by physical commodities, which confer ownership rights, would be predominantly classified as utility tokens or Asset-Reference Tokens, and not as security tokens (ESMA, 2024).

The custody and collateral dimension was deepened through a granular analytical checklist (Scharfman, 2022). This instrument captured specific requirements related to proof of collateral, segregation and ownership, warehousing and custody chain, issuance and redemption mechanisms, operational risk management, legal treatment in insolvency, AML at the physical redemption end, and socio-environmental integrity and traceability of origin (FATF, 2021; IOSCO, 2020; LBMA, 2023).

The analysis of regulatory costs and deadlines was conducted qualitatively, using proxies to assess the operational and financial impact of compliance. The number of competent authorities, the need for a proprietary license or an authorized intermediary, the territorial scope of the authorization, and the level of regulatory predictability in each jurisdiction were considered.

The context of a Canadian venture capital firm, which develops real asset tokenization solutions, was used as an applied reference to evaluate the practical utility of the recommendations. The firm did not constitute the central empirical unit of the investigation, but served to support comparative regulatory analyses with a concrete business profile (Bowen, 2009).

Based on the comparative analysis of the regulatory scenarios and the identified compliance challenges, a five-step compliance framework was proposed. This framework aims to assist issuers of tokens backed by physical commodities seeking global expansion, offering a structure for strategic compliance decision-making.

3. Results and Discussion

The comparative analysis of regulatory scenarios for the tokenization of physical commodities revealed significant patterns and divergences among the studied jurisdictions, offering an in-depth understanding of compliance challenges for globally expanding companies. The results indicate that, although there are similarities in fundamental obligations, such as those for combating money laundering and terrorist financing (AML/CFT), specific requirements for custody, backing, governance, and transparency vary considerably, reflecting different stages of regulatory maturity. This complexity demands a strategic and adaptable approach from issuers of tokens backed by real assets.

Canada has a dual regulatory system for crypto-assets, with FINTRAC focusing on AML/CFT and the Canadian Securities Administrators (CSA) on securities (CSA, 2023; FINTRAC, 2024). The classification of tokens, including utility and commodity tokens, is determined by their actual economic nature, not just by denomination. The CSA, through Staff Notice 21-332, requires crypto-asset trading platforms to register as dealers or marketplaces, prioritizing investor protection over technological neutrality. The absence of a single federal securities authority, unlike in the European Union, results in fragmented regulatory compliance, requiring engagement with various provincial commissions, with the Ontario Securities Commission (OSC) being the most influential.

From a strategic point of view, fragmented regulation by province in Canada directly impacts the cost of entry and market expansion. A commodity-backed token issuer seeking to operate nationally needs to meet requirements that can vary between provinces, increasing compliance costs. The CSA uses an adaptation of the American Howey Test to classify tokens as security or derivative, based on the expectation of profit derived from the efforts of third parties and the actual and immediate functionality of the asset (CSA, 2023; OSC, 2023). This classification based on economic substance increases uncertainty for issuers of physically backed tokens, as the custody, redemption, and economic expectation structure can alter the regulatory framework.

FINTRAC’s AML/CFT requirements are mandatory for all businesses dealing with virtual currencies, requiring registration as a Money Services Business (MSB) or Foreign Money Service Business (FMSB) before commencing operations (FINTRAC, 2024; PCMLTFA, 2000). Key obligations include mandatory MSB registration, information sharing requirements for virtual currency transfers (Travel Rule), reporting of virtual currency transactions above CAD $10,000 (Large Virtual Currency Transaction Reports), and an AML/CFT compliance program with KYC, transaction monitoring, and suspicious activity reporting. Although registration is free, the process can take six to ten months, and non-compliance may result in administrative and criminal penalties.

The United Arab Emirates (UAE) stand out as one of the most advanced jurisdictions in the tokenization of real assets, a result of a regulatory policy aimed at attracting capital and financial innovation. Both Dubai, through the Virtual Assets Regulatory Authority (VARA), and Abu Dhabi, with the Abu Dhabi Global Market (ADGM) and its Financial Service Regulatory Authority (FSRA), have developed robust frameworks for the tokenization of various assets, including commodities.

In Dubai, the Virtual Asset Issuance Rulebook (VARA, 2025) and the Guidance on the Virtual Asset Issuance Rulebook (VARA, 2026) establish a regulatory framework with three issuance categories. Tokens backed by physical commodities, which confer ownership or redemption rights, are classified as Asset-Referenced Virtual Assets (ARVAs) and fall under Category 1, requiring a specific license from VARA. Issuers must comply with four mandatory Rulebooks (company, compliance and risk control, information technology, and market conduct) and obtain prior approval from VARA for the whitepaper of each token issued. The regulation requires a detailed document on the underlying asset, legal structure, risks, and holder rights, in addition to a risk disclosure statement.

The maintenance of reserve assets corresponding to the value of the issued token is conditional for ARVAs, being required only for those that reference the commodity price without transferring direct ownership of the physical asset. ARVAs that confer direct and transferable ownership of the physical asset are exempt from this requirement. Custody qualified by an independent entity and periodic audit of the existence and value of the underlying asset are mandatory. Robust corporate governance with segregation of duties, escalation protocols, and edge committees are also required, in addition to notification of changes and continuous updating of the whitepaper. This distinction has direct strategic implications, as the direct ownership model reduces regulatory obligations but increases the complexity of the custody chain and the legal transfer of the physical asset (VARA, 2026).

In Abu Dhabi, ADGM pioneered the construction of a comprehensive framework for digital assets, with a clear distinction between virtual assets and digital securities, operationalized by the Financial Services and Markets Regulations (FSMR). Tokens classified as securities follow the securities regime, with access to licensed Multilateral Trading Facilities (MTFs) for secondary trading, which represents a significant differentiator for issuers seeking institutional liquidity. The scope of the framework covers virtual assets and digital securities, with FSP (Financial Services Permission) licensing and specific rules for digital securities under FSMR. Custody requirements include asset segregation, security controls, and auditing, with framework updates scheduled for June 2025.

The coexistence of two regulatory frameworks in the UAE (VARA and ADGM) introduces a dimension of internal jurisdictional arbitration. Issuers can choose between VARA’s more prescriptive and specific asset-oriented regime or ADGM’s sophistication for institutional-focused tokenized securities structures. This strategic choice has practical consequences on licensing costs, access to qualified investors, and exposure to VAT requirements, which vary according to the nature of the underlying asset and the legal structure of the token. Regulatory fragmentation, in this case, can stimulate jurisdictional specialization and regulatory innovation through competition.

The European Union has established one of the most comprehensive regulatory frameworks globally for digital assets and real asset tokenization, with the MiCA (Markets in Crypto-Assets Regulation) for crypto-assets that are not financial instruments and MiFID II for tokens that qualify as financial instruments (European Parliament & Council, 2023; ESMA, 2024). MiCA, applicable from December 30, 2024, creates rules for the issuance, public offering, and provision of services related to crypto-assets, but does not apply to crypto-assets considered financial instruments under MiFID II (ESMA, 2025).

Within MiCA, crypto-assets are categorized into Asset-Referenced Tokens (ARTs), E-Money Tokens (EMTs), and Utility Tokens, each with distinct requirements. ARTs, which reference multiple assets, generally require an approved whitepaper, asset reserve, minimum capital of €350,000, governance rules, and a recovery plan. EMTs, referenced to a single fiat currency, require the issuer to be a credit institution or electronic money institution, maintain a 1:1 reserve, and guarantee the redemption right. Utility Tokens, which grant access to goods or services, typically require a whitepaper and conduct rules in case of a public offering.

When a token represents a transferable financial instrument, it is governed by MiFID II, not MiCA. This applies to tokenized shares, bonds, and fund units, implying typical European capital market obligations, such as a prospectus for public offerings, licensing as an investment firm, custody rules with asset segregation and investor protection, market conduct controls, and trading in authorized environments. ESMA published guidelines in March 2025 to harmonize the classification of crypto-assets as financial instruments, providing clearer criteria.

The DLT Pilot Regime, in effect since March 2023, allows for the experimental operation of DLT-based trading and settlement infrastructures for tokenized financial instruments. Although its relevance to this research is indirect, it can support secondary liquidity when the tokenization structure is classified as a financial instrument. The European case demonstrates that legal predictability comes at a cost. The combination of MiCA, MiFID II, and the DLT Pilot Regime offers a high degree of regulatory certainty, including passporting across the EU/EEA, but it is accompanied by capital, governance, licensing, and conduct requirements that raise entry barriers. The strategic decision for issuers is to analyze which token structure maximizes access to the European market within the available compliance budget.

In Brazil, there is no specific and comprehensive legislation for the autonomous tokenization of assets (ANBIMA, 2023; Oioli, 2025). The legal framework for commodity-backed tokens depends on the economic nature of the token (whether or not it is a security) and the form of public offering and distribution. This approach, which prioritizes economic substance, implies that the same type of asset may receive different regulatory treatments. The Brazilian regulatory framework is still under construction, and the analysis focused on the classification of assets and AML/CFT, where norms are available, with the dimensions of custody and backing being treated inferentially.

For tokenized commodities, the project may fall under different regimes: CVM (if a security), Central Bank of Brazil (BCB) (if payment arrangements/financial services), and, in many cases, under civil/contractual law, taxation, and risk control rules. The relevant regulatory framework includes Law 14.478/2022 (Legal Framework for Cryptoassets), Decree 11.563/2023, and CVM Resolution 88/2022. Law 14.478/2022 regulates virtual asset services, not tokenization itself, and Decree 11.563/2023 details operational and supervisory aspects without creating specific rules for commodity tokenization, confirming that the Brazilian framework treats tokenization as a phenomenon derived from financial services.

CVM Resolution 88/2022 is a milestone for asset tokenization in Brazil (CVM, 2022; Caggiano, 2025), providing an entry point for equity crowdfunding offerings adapted to tokenized structures, especially when the token qualifies as a security. However, its relevance for commodity tokens is conditional, as it does not resolve central issues such as proof and auditing of the physical backing, the custody structure of the underlying asset, the contractual rights of the token holder, and compatibility with sectoral regulations. In 2025, the CVM proposed changes to facilitate fundraising via tokens, but their effectiveness for commodity tokens will depend on how future issues of backing and custody are addressed.

The specific legal and operational challenges for commodity tokens in Brazil include the lack of clarity regarding backing and its proof, custody and auditing of the physical asset, token holder rights (ownership, credit, redemption, settlement), public offering risks and characterization as an investment, and compatibility with existing rules, which focus more on real estate tokenization. The undefined jurisdiction between CVM and BCB for hybrid structures, especially those where the tokenized commodity is used as a payment instrument, creates legal uncertainty and increases regulatory risk. The Brazilian scenario offers structural flexibility, but the cost is uncertainty, with the risk of future regulatory reclassification.

Thailand has a regulatory framework for digital assets that allows for the tokenization of commodities, including carbon credits and agricultural assets (SEC Thailand, 2018; SEC Thailand, 2024). The SEC in Thailand has been expanding the scope of tokenization, with significant developments in 2024-2025 focused on sustainability-related tokens and carbon credits (SEC Thailand, 2025). The requirements for each type of token follow the Emergency Decree on Digital Asset Business B.E. 2561 (Royal Thai Government, 2018) and subsequent notifications from the SEC Thailand.

For commodity tokens in Thailand, public offerings must be conducted through a licensed ICO Portal, requiring a detailed whitepaper on the asset, structure, and risks. Proof of reserves, demonstrating the existence and custody of the underlying commodity, is essential for credibility. Secure physical custody of the asset is necessary for backed tokens, and independent verification/auditing of reserves is recommended or mandatory depending on the token type. For sustainability tokens, sustainability disclosure has been mandatory since 2024. This ICO Portal mechanism concentrates the verification and analysis responsibility on the licensed portal, reducing information asymmetry, but it increases the cost and time for structuring, acting as a barrier to entry for smaller projects.

Thailand has positioned itself as a pioneer with the explicit regulation of carbon credit tokenization, effective since March 2025, and the creation of a specific category for sustainability-related tokens. The existence of a dedicated regulatory regime for tokenized carbon credits, with requirements for independent verification, authorized custody, and trading on a licensed exchange, eliminates the regulatory uncertainty that characterizes this market in other jurisdictions. However, the sustainability disclosure and environmental impact verification requirements impose a standard of evidence that may be difficult to meet for projects with less robust ESG attributes. The Thai model combines structural flexibility with thematic direction, allowing for market experimentation while signaling clear regulatory priorities.

The comparative synthesis of regulatory patterns and divergences among the six jurisdictions revealed that AML/CFT requirements are universally present, with KYC obligations, transaction monitoring, and suspicious activity reporting required in all jurisdictions, reflecting the influence of GAFI/FATF recommendations (FATF, 2021). The requirement for a whitepaper or equivalent disclosure document is also a common regulatory pillar, although its content, approval process, and legal consequences vary significantly. Informational transparency is, therefore, a non-negotiable element in any global expansion strategy.

The main divergence lies in the degree of maturity and specificity of the regulatory frameworks. The European Union, with MiCA fully in effect, and the UAE (VARA and ADGM) present more developed and detailed regimes for tokenization, with specific regulatory categories, granular requirements for custody, governance, and reserves, and well-defined licensing mechanisms. This provides predictability but increases initial compliance costs. In contrast, Canada presents regulatory fragmentation, Brazil is in an intermediate stage with regulatory gaps, and Thailand, although proactive in specific areas, operates with market access control via the ICO Portal.

The findings indicate that regulatory maturity should not be interpreted solely as a restriction, but as a factor that, in more detailed regimes such as in the EU and the UAE, raises initial compliance costs but reduces uncertainties regarding issuer classification, custody, disclosure, and liability. Developing regimes, on the other hand, may allow for greater structural flexibility but transfer a larger share of interpretation, reclassification, and regulatory adaptation risk to the issuer. This outcome is consistent with the literature on financial innovation and regulation based on economic substance, which points to legal predictability as a central component of the viability of transnational tokenized models (Arner et al., 2020; Zetzsche et al., 2020).

The analysis of regulatory costs and deadlines, carried out qualitatively, considered as proxies the number of competent authorities, the need for a proprietary license or an authorized intermediary, the territorial scope of the authorization, and the level of regulatory predictability. The European Union and the UAE present the highest initial structuring costs, but also the greatest regulatory predictability, and in the European case, the greatest potential for scale via passporting. Canada, Brazil, and Thailand, in turn, may offer less standardization and greater dependence on case-by-case analysis, which reduces certain entry costs, but may increase legal costs, restructuring risks, and long-term decision-making deadlines.

Based on this comparative analysis, a five-step strategic compliance model is proposed for issuers seeking to tokenize commodities backed by physical assets and expand globally. The first step is the legal classification of the token, a critical decision where the economic substance of the instrument, not its formal denomination, determines the applicable regulatory framework. The second step involves selecting and prioritizing the jurisdiction, considering the alignment between the asset’s profile and available regulatory categories, the total compliance cost, the need for licensed intermediaries, and the desired investor profile. The UAE is more explicitly designed for physical RWAs, the EU offers greater scale via regulatory passporting at a high cost, and Brazil and Thailand are viable for issuers with a higher tolerance for uncertainty.

The third stage focuses on the physical backing structure, which often determines the operational viability of the project. Minimum cross-cutting requirements include custody by an entity independent of the issuer, periodic and auditable verification of reserves, contractual definition of the holder’s rights in case of redemption or liquidation, and legal segregation between the issuer’s assets and the backing assets (Ashfaq et al., 2026; Harvey et al., 2026; Mandadhi, 2025). For commodities with environmental or social attributes, the backing structure must include verifiable evidence of origin and socio-environmental integrity. The fourth stage is the correct sequencing of licenses and registration, where competence analysis must precede the license application in jurisdictions with multiple regulators. In the UAE, the choice between VARA and ADGM should be guided by the token structure and the profile of the target investors. Finally, the fifth stage is continuous regulatory monitoring, essential due to the dynamic regulatory landscape, requiring a formal mechanism for regulatory monitoring and an adaptation protocol to avoid complete product restructurings at each regulatory cycle.

4. Conclusion

This study analyzed and compared the regulatory scenarios and compliance challenges related to the tokenization of physical commodities across various jurisdictions, seeking to propose strategies for the global expansion of companies in this segment. The existence of common regulatory standards, such as anti-money laundering and counter-terrorist financing (AML/CFT) obligations and the requirement for a whitepaper, which are universally present, was verified. However, significant divergences were identified in custody, backing, and governance requirements, reflecting different stages of regulatory maturity among jurisdictions. The United Arab Emirates and the European Union presented more developed frameworks, offering greater predictability but with higher initial compliance costs. In contrast, Brazil, Thailand, and Canada demonstrated greater regulatory uncertainty, with fragmented or developing approaches.

The proposition of a five-step strategic compliance framework, designed for issuers of tokens backed by physical commodities seeking to operate globally, constitutes the main contribution of this study. This framework comprises the legal classification of the token by its economic substance, strategic jurisdictional selection, robust structuring of the physical backing, adequate sequencing of licenses and registrations, and continuous regulatory monitoring. Although the analysis of regulatory costs and deadlines was qualitative, based on proxies, and the regulatory landscape in some jurisdictions still presents inherent uncertainties, the model offers a structured path to align technological innovation with legal compliance. Empirical validation of this framework and a deeper analysis of how future regulations, especially in emerging markets, will address collateral and custody issues, given the dynamic nature of this sector, are suggested for future studies.

Bibliographic References

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Article originating from the Final Course Work of the Specialization in Compliance and ESG of the MBA USP/Esalq

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