Compliance by design or law by decree? A comparative analysis of the tokenization of financial instruments

The tokenization of financial instruments—the conversion of assets into digital representations on distributed ledgers—represents a structural transformation of capital markets. While it promises a "compliance by design" paradigm where algorithmic code guarantees rights and minimizes trust costs, the academic literature often overlooks the fundamental paradox at its core: blockchain technology cannot independently resolve the legal uncertainty surrounding the nature of tokens or their enforceability against third parties. This study fills a critical gap by integrating technological protocols and comparative law through a Law and Economics lens to determine if tokenization truly heralds an autonomous "on-chain" financial law or remains an evolution strictly conditioned by sovereign norms. By evaluating the regulatory models of Switzerland, the European Union, the United Arab Emirates, and the United States, this research identifies the institutional transaction costs inherent in each system. The methodology views these legal frameworks as dynamic incentive systems, evaluating their capacity to minimize institutional transaction costs and meet the requirements of global financial stability. The results demonstrate that systemic adoption remains hampered by two structural "locks": the absence of a wholesale central bank digital currency (wCBDC) to eliminate counterparty risk, and the persistent fragility of contractual protections for holders in the event of insolvency. Ultimately, the study concludes that the value of tokenization is only fully realized when code and law are explicitly aligned.