Tokenise This: Is There a Role for Blockchain in Equity Rewards?

“Equity, but on the blockchain” sounds visionary. But does it work in practice, especially when tax, governance and employee understanding are on the line? Tokenisation has long been heralded as the future of financial infrastructure: a means of converting ownership rights in real-world assets into a programmable digital form. In theory, that means faster, smarter, more global reward structures. But when it comes to employee incentives, most companies are still trying to understand where, if anywhere, tokenisation fits.

A bit about our authors, Nigel is an equity incentive specialist at the law firm Burges Salmon. Ledgy is a modern equity management platform powering thousands of publicly listed and privately held high-growth companies. Together, we bring complementary perspectives: one grounded in legal enforceability, the other in product innovation and operational scale. This article explores whether and when tokenisation is fit for purpose in equity reward.

What is tokenisation?

Tokenisation refers to recording ownership rights such as currencies, shares, value entitlements or governance rights, as digital tokens on a blockchain. These tokens can be coded with business logic (e.g. vesting or leaver conditions), transferred peer-to-peer and audited transparently.

Not all tokens are equal. For equity-related purposes, they typically fall into three categories:

• Security tokens - Represent actual shares or enforceable economic rights. Rare and legally complex.
• Synthetic tokens - Track equity value or performance but confer no legal ownership.
• Utility/governance tokens - Grant participation or voting rights, usually with no financial interest.

For completeness, stablecoins (being a subset of cryptocurrencies) are a specific type of token designed to maintain a stable value pegged to a stable fiat currency like the US dollar.

Where is Tokenisation already being used?

Tokenisation is gaining traction across various new and adjacent platforms and industries:

• Asset managers like Franklin Templeton and UBS are experimenting with tokenised fund units.
• Real estate platforms offer fractional ownership via blockchain-based tokens.
• Regulated exchanges such as INX and ADDX support tokenised equity and debt trading.
• Decentralised Autonomous Organisations (DAOs) issue reward and governance tokens in lieu of traditional equity and share options.

In these cases, tokenisation solves real-world inefficiencies. But employee equity rewards operate within stricter legal and tax frameworks, especially in jurisdictions like the UK.

Where tokenisation could work in incentive design

While not ready for mainstream adoption, tokenisation may offer strategic value in certain contexts. For example:

1. Global contributors and borderless teams. For decentralised organisations with contributors (advisors, developers, designers) across multiple countries, especially where there is no formal employer, tokenised incentives can provide a jurisdiction-agnostic reward model. No share capital? No problem.
2. Automated vesting and forfeiture. Smart contracts can encode time-based vesting, leaver provisions and clawbacks. Ledgy already supports these design features for traditional share plans, and it would be easily achievable for tokenised rewards. Less Excel. More logic.
3. Internal liquidity and forward selling. Tokenisation enables liquidity, not just at the time of an exit, but in advance. Contributors could, in theory, forward-sell vested or partially vested tokens to third parties for early value. This transforms tokens from passive promises into live financial assets. Caution: Forward selling would need to be carefully structured. If tokens represent enforceable equity, this may trigger tax liabilities or securities law issues. But for synthetic tokens, it could unlock flexibility that conventional equity can’t provide.
4. Transparency and UX. Tokenised plans lend themselves to real-time dashboards showing value earned, vesting status, and projected upside. This is an important feature that Ledgy already delivers to participants in their employee dashboard feature, enabling plan participants to track, evaluate, exercise and trade their own equity stake. This visibility across both traditional and emerging instruments will help bring equity to life for share plan participants.
5. Data integrity and auditability. Because tokens sit on an immutable ledger, every grant, transfer or lapse can be time-stamped and recorded permanently. This creates a verifiable audit trail that is harder to manipulate than traditional spreadsheets or plan registers. For companies subject to regulatory reporting or investor scrutiny, that level of traceability could add comfort and reduce disputes.

So, when someone says, “we’ve tokenised our cap table,” the first question should be: what does the token represent? The next, under what legal framework?

Why most companies should still proceed with caution

While the benefits are real, so are the constraints, especially in heavily regulated environments like the UK:

• No legal footing under UK company law. Equity ownership is defined by the statutory register. A token, unless contractually linked to a registered share, confers no legal rights and likely won’t survive a sale or enforce governance protections.
• HMRC approved plans incompatibility. Tokens aren’t qualifying securities under EMI, CSOP, SAYE, SIP etc. That means no capital gains tax treatment, no statutory corporation tax deduction and no valuation protection under existing HMRC safe harbours.
• Employee comprehension risk. Even basic share options can be misunderstood. Throw in crypto wallets, seed phrases, smart contracts and gas fees and most employees will disengage.
• Potential irreversibility and operational risk. It is possible to lose your wallet key. With no recovery mechanism, your token entitlement would then be permanently lost. In blockchain systems, there is no “reset password”.
• Due diligence friction. Buyers want clean cap tables, enforceable rights and alignment with the constitutional documents. Tokenised rewards that sit outside legal frameworks are unlikely to survive the exit process without expensive remediation.

What would need to change?

To make tokenised equity viable in conventional UK structures, we would need:

• Legal recognition of blockchain-based securities
• A method to link tokens to statutory registers
• Amendments to tax legislation
• HMRC guidance confirming capital treatment
• A compliance framework for custody, KYC and reporting obligations

The UK is working on rules for digital assets. In 2023, the Law Commission looked into how these assets should be treated under the law. The government has also set up a Digital Securities Sandbox, run by the FCA and Bank of England, to test new ways of using digital technology in finance. These steps show progress, but until the law officially includes digital tokens, they aren’t covered by the Companies Act 2006.

In the meantime, the barriers to meaningful adoption remain material. Without legal certainty, few companies will take the risk. In a UK context, where enforceability, tax treatment and exit readiness must all stand up to scrutiny, tokenised equity cannot simply be layered onto existing plans. The issue is not one of technical feasibility, but of legal defensibility. Until fiduciary duties, reporting obligations and investor protections are clearly addressed in statute or guidance, most companies will default to conventional structures, not out of conservatism, but out of necessity.

Conclusion: solve for alignment, not the hype

Tokenisation may well become part of the UK’s financial future and recent government initiatives support this. Indeed, in her 2025 Mansion House speech Rachel Reeves reiterated her ambition for the UK to lead on digital asset infrastructure. But tokenisation won’t fix poor plan incentive design, governance gaps or legal misalignment. Until the legal, tax and compliance infrastructure catches up, companies should focus on aligning equity rewards to existing frameworks. Get that right and the future should take care of itself.

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