Divergence of Regulatory Token Protocol Standards: Issuance, Compliance, and Integration Each Play Their Role

EVM regulatory token standards: ERC-1450 manages issuance, ERC-3643 manages identity compliance, and ERC-7943 manages integration.

Written by: @JayLovesPotato, Four Pillars
Compiled by: AididiaoJP, Foresight News

Key Points

The regulatory token standards on EVM have not converged into a single unified specification but have clearly defined roles according to their functions. Therefore, ERC-1450, ERC-3643, and ERC-7943 should not be viewed as competing standards but rather as complementary components responsible for issuance, identity, execution, and integration, respectively.

Note: Regulatory token standards are simply technical specifications designed specifically for "regulated tokens." Ordinary tokens (like standard ERC-20) can be transferred and held freely, with almost no restrictions. However, regulatory tokens (Regulated Tokens) are different; they typically correspond to regulated assets such as securities, fund shares, bonds, and RWA (real-world assets), transforming the token from "freely transferable by anyone" to a technical rule that "complies with financial regulatory requirements."

The key differences between chains do not lie in whether they possess regulatory functions but rather in where these functions are implemented and executed. EVM retains a high degree of flexibility at the individual asset contract level; Solana and Move-based chains place more functions within a shared token framework; Stellar and XRPL embed them directly into the ledger; while Canton and Avalanche L1 extend further into market and network operations.

The competitiveness of regulatory token standards is likely to depend more on their adaptability to regulatory changes in the future rather than the sheer number of functions. A more pragmatic direction is to build a compliance stack: standardizing recurring execution functions such as freezing, forced transfers, and pre-transfer verification, while breaking down product-specific policies like identity providers, jurisdiction rules, and holding limits into interchangeable modules.

Even in the Ethereum EVM environment, which institutions are most familiar with, there are multiple ERCs addressing similar needs for regulatory tokens. They generally support transfer restrictions, investor qualification checks, freezing, forced transfers, and asset recovery. However, the legal structures and operational authorities assumed by each standard exhibit significant differences.

Beyond EVM, other chains have also incorporated comparable functions at the token program, ledger, or network level, further broadening the implementation paths for regulated assets.

This reflects, to some extent, that regulatory token standards have yet to form a clear structure. The more fundamental reason is that the functions required for regulated assets are difficult to fit into a single specification. Who maintains the legal records of securities, which institution certifies investor qualifications, and how much control the operator retains in the event of an incident—these questions vary by product and jurisdiction.

Thus, the market is moving towards an architecture where these functions are distributed across multiple layers and combined as needed, rather than pursuing a completely self-sufficient single standard.

Regulatory Token Standards on EVM

Early standards mostly attempted to directly replicate the operational structure of traditional finance into token contracts. Under ERC-1450, registered transfer agents are not only responsible for issuance and redemption but also execute every transfer, prohibiting ordinary users from calling transfer and approve. This clarifies who maintains legal records and who is responsible for responding to court orders or lost keys. However, it also distances itself from the permissionless asset flows assumed by traditional DEXs and lending protocols.

ERC-3643, on the other hand, disperses regulatory functions across token contracts, identity registries, trusted issuers registries, and independent compliance modules, rather than centralizing them under a single authority. Transfers are verified against statements issued by trusted entities, including KYC status, residency, and qualified investor status; issuers can also add rules such as investor numbers and national holding limits. Retaining the basic ERC-20 structure while allowing for the replacement of individual rules is a meaningful advantage. The trade-off is the operational burden brought about by coordinating multiple contracts, identity issuers, and privilege management roles.

The more recent ERC-7943 takes a different approach: it does not define regulatory policies per se but exposes a set of universal interfaces, including canSend, canReceive, canTransfer, balance freeze queries, and forced transfer functions. This allows wallets, exchanges, custodians, and DeFi services to interact with different regulated assets in a consistent manner. In other words, ERC-3643 is the stack for creating regulatory tokens, while ERC-7943 is closer to an integration layer connecting multiple stacks. Recently, CMTAT implemented support for ERC-7943, further illustrating that this minimal interface can overlay existing issuance standards.

ERC-7518 and ERC-8047 cater to more specialized needs. ERC-7518 applies different share classes, jurisdictions, and lock-up conditions to individual ERC-1155 partitions; ERC-8047 records parent-child lineage during asset flows, allowing execution to target specific funding flows rather than the entire account. The former clarifies rights distinctions within a single asset; the latter enables more precise post-event tracking and execution. They are more likely to serve as modules complementing a broader compliance stack rather than replacing the all-encompassing standard of ERC-3643.

Where Other Chains Place Regulatory Functions

Solana's approach features placing recurring token functions at a lower shared layer. Functions such as Transfer Hook, Permanent Delegate, and Confidential Transfer are provided through a common Token Extensions library, while the Solana Attestation Service allows applications to reuse off-chain information such as KYC status, geographical location, and investor qualifications. This reduces the need for each issuer to independently rebuild and audit the same functions. However, when wallets or protocols do not support a certain extension, integration may still break; additionally, assets configured with strong issuer controls like Permanent Delegate must be viewed by DeFi applications as an additional layer of counterparty risk.

Stellar and XRPL expose authorization, freezing, and recovery as properties of native assets on the ledger. These controls consistently apply across transfers and native transaction functions, allowing applications to avoid reinterpreting custom logic for each token contract. Stellar is expanding the connection between ledger assets and smart contract environments through Stellar Asset Contracts; XRPL is building around MPT, evolving from permissioned holdings, freezing, and recovery to privacy-related functions. However, the deeper the rules are embedded in the ledger, the more their evolution depends on network upgrades and consensus. Control settings may also more directly constrain the liquidity and usage scope of assets.

Sui and Aptos sit between the contract-centric model of EVM and the ledger-native model. Sui records the rejection list status and global pause permissions of regulated assets in the Currency Registry; Aptos can freeze accounts through the TransferRef of the Fungible Asset framework or bypass these restrictions through privileged transfers when necessary. Recurring execution functions like address blocking and emergency pausing are provided by the framework; more complex policies, such as investor classification and country-specific holding limits, are left to independent Move modules. In this regard, their architecture is closest to the modular direction that the EVM ecosystem itself is heading towards.

Canton extends the regulatory scope from tokens to the entire market operation. CIP-56 standardizes not only balance transfers but also specific party information disclosures, recipient approvals, and atomic delivery versus payment (DvP); Token Standard V2 is being tested on an independent DevNet set for 2026. This design offers stronger operational consistency and privacy but also requires dedicated identity and development environments. Therefore, existing public chain liquidity and applications cannot be simply migrated over.

Avalanche L1 is better understood as an option for building the regulatory market itself, rather than merely issuing regulatory tokens. Operators can restrict trading participants and contract deployers with whitelists while requiring validators to meet KYC, AML, or licensing conditions. This stack can also connect identity providers like Jumio and Keyring to txAllowlist, making it very suitable for institution-only exchanges or payment networks. The cost is operational: validators, upgrades, cross-chain bridges, and liquidity must all be managed independently, with costs and fragmentation levels far exceeding those of issuing a single token on existing EVM networks.

Separating General Execution Functions from Regulatory Policies

Overall, these paths indicate that both extremes have clear limitations: whether embedding the entire regulatory stack into the network or leaving all functions to a single ERC. Most regulatory assets will have recurring general execution functions—pre-transfer verification, freezing, forced transfers, emergency pauses, and metadata disclosing management authority and related risks—best placed near the token framework, ledger, or at a minimal interface like ERC-7943. This can reduce implementation differences and auditing costs among issuers while allowing wallets, exchanges, and custodians to consistently identify the control structures of assets.

In contrast, decisions about which identity providers to trust, which jurisdictions to allow, how to calculate holding limits and lock-up periods for investor levels, and who can execute legal orders—these decisions are better left to asset-specific ERCs or independent modules. These rules vary by product and jurisdiction and must be updated with legal changes. Hardcoding them into the foundational rules of the network not only slows down upgrades but may also turn specific financial market policy choices into default settings for a general chain.

In other words, the regulatory token market is more likely to develop in the form of a compliance stack rather than converging into a single standard. In this model, interchangeable identities, jurisdictions, and product-specific rules will be built on top of general execution functions. Ethereum and the broader EVM ecosystem still have advantages in policy flexibility and existing liquidity access; ledger-native chains are stronger in execution consistency and operational simplicity; while dedicated networks like Canton stand out in privacy and institutional workflows.

Therefore, adoption rates are unlikely to be determined by which standard has the longest list of functions. More importantly, whether regulatory policies can change without reissuing assets or forcing wallets, exchanges, and custodians to rebuild integrations from scratch. Another key test is whether external participants can clearly identify, assess, and manage the powerful controls embedded in the assets.