GCC Tokenization Boom Hides Complexity of Ownership Rights

The rapid growth of tokenization in the Gulf Cooperation Council (GCC) is being touted as one of the world's most ambitious regions for real-world asset (RWA) tokenization. However, a closer look reveals that investors are often unclear about what they actually own when purchasing these assets.

Tokenized assets come in 13 structurally different financial instruments, each with its own set of ownership rights, yet they are frequently discussed as if they were interchangeable or the same. This confusion can lead to significant losses for investors, as was seen during the Silicon Valley Bank failure in March 2023.

When Circle disclosed that $3.3 billion of USDC reserves were held at the bank, the value of USDC plummeted to around $0.87. The issue here is not with the smart contract or the blockchain itself but rather the off-chain dependency supporting the product. Investors believed they owned digital dollars, but in reality, they held a claim whose value depended on Circle's ability to recover reserves from a commercial bank.

The GCC is seeking to become a global leader in digital capital markets, with sovereign wealth funds and financial institutions investing heavily in tokenized funds, property, and other real-world assets. However, many of these products still fail to clearly communicate what investors actually own. To address this issue, the industry needs to adopt a shared vocabulary and provide clear disclosure on the ownership rights associated with each product.

The European Union's Markets in Crypto-Assets (MiCA) regulation and Singapore's Project Guardian both point towards classifying where completion sits, not just by what the asset is. This means that a token that settles on the ledger is a different supervisory object from one that depends on a countersignature two systems away.