Wrapped Token Regulation

Definition ∞ Wrapped Token Regulation refers to the legal and supervisory frameworks applied to digital assets that represent another asset, typically on a different blockchain. Wrapped tokens, such as Wrapped Bitcoin (WBTC), allow assets from one blockchain to be used on another by pegging their value to the original asset, usually through a custodian. Regulators are examining how to classify these tokens and which existing rules, such as those for stablecoins, securities, or derivatives, should govern their issuance, custody, and trading. This oversight aims to address risks associated with their underlying collateral and operational models.
Context ∞ The regulatory status of wrapped tokens remains an area of active discussion and evolving clarity across jurisdictions. A key challenge involves determining the regulatory responsibilities of the custodians who hold the underlying assets and the platforms that issue and trade the wrapped versions. Concerns include the transparency of reserves, potential for systemic risk, and consumer protection. Clearer regulation is essential for the continued growth and institutional acceptance of cross-chain asset transfers.