The integration of traditional financial instruments into the digital world is bringing about a revolutionary change in the financial sector. One of the most critical and innovative areas of this transformation is the tokenization of promissory notes (bonds). At Genesis Law Firm, we provide our clients with comprehensive and advanced legal consultancy services regarding the technical, legal, and regulatory complexities arising from the process of digitizing promissory notes using blockchain technology. Our aim is to help you minimize legal risks, increase operational efficiency and liquidity, and effectively leverage the opportunities presented by technology in this innovative process.

For institutions and individuals seeking legal support in the field of promissory note tokenization in Turkey and internationally, we stand out with our in-depth knowledge and strategic approaches. The services we offer encompass not only regulatory compliance but also innovative solutions that will enable you to evaluate the opportunities offered by technology in the most effective way.

Our Comprehensive Legal Service Areas and Details:

Ensuring your tokenization journey has a solid legal foundation at every step is essential for the success of your project. At Genesis Law Firm, we are with you from the very beginning with comprehensive analysis and strategic planning:

We meticulously analyze the legal nature, validity, and enforceability of the promissory note you intend to tokenize, or the underlying debt relationship, under the Turkish Commercial Code (TCC), Turkish Code of Obligations (TCO), Capital Markets Law (CML), and the new Crypto Asset Law, which entered into force on July 2, 2024.

We particularly emphasize that Article 1526 of the TCC, which explicitly prohibits the issuance and transfer of promissory notes with secure electronic signatures, is the biggest legal obstacle to tokenization in a way that preserves their nature as "negotiable instruments" directly under the TCC. This situation, unless there is a reform in the TCC, suggests that tokenized debt instruments may need to be treated under a different legal status, such as "security tokens" within the scope of existing capital markets and new crypto-asset laws, rather than as digital twins of TCC-compliant bonds.

We explain this critical legal gap and contradiction in detail to our clients, enabling them to build the legal foundation of their project on solid ground. We evaluate the role of general mechanisms of debt law, such as the assignment of receivables (TCO Art. 183 et seq.), in this process and whether they can fully meet the unique advantages of negotiable instruments (e.g., abstraction, ease of transfer, protections afforded to the holder).

We provide clear legal opinions on how your tokenized bonds can be classified in Turkey – as "security tokens," "e-money tokens," or "other types of crypto assets". This classification is of vital importance for determining regulatory obligations and licensing processes.

With the new Crypto Asset Law providing a legal basis for the issuance of capital market instruments as crypto assets, we offer up-to-date consultancy on "Security Token Offering (STO)" practices in Turkey and the secondary regulations of the Capital Markets Board (CMB/SPK).

We provide detailed consultancy on selecting the most appropriate token type (e.g., ERC-20, ERC-721, ERC-1400, ERC-3643, Soulbound Token) and DLT platform (permissioned/permissionless) for the legal nature of the note and the objectives of your project. We explain, with practical examples, why standards like ERC-1400 or ERC-3643 are critical for security tokenization in terms of legal compliance (transfer restrictions, off-chain document management, investor whitelisting, identity management) and auditability.

We provide comprehensive information on legal regulations and practical approaches to tokenized debt instruments in leading jurisdictions such as Switzerland (DLT Act and uncertificated securities), Liechtenstein (Blockchain Act - TVTG and its sui generis Token Container Model), Germany (Electronic Securities Act - eWpG and Crypto Securities Registries), the United Kingdom (Law Commission's "third category" of property proposal for digital assets), the USA (UCC Article 12 and Controllable Electronic Records - CERs), and Singapore (MAS, Project Guardian, and GFIF).

These international analyses are instructive in accurately assessing the legal validity and implementation potential of cross-border transactions and in identifying potential "best practices" and areas for legal reform for policymakers in Turkey.

Bond tokenization is inherently subject to a multi-layered legal framework. Genesis Law Firm ensures your project navigates this complex maze safely:

Strategic Management of Multiple Regulatory Domains: We are aware that tokenized promissory notes concern many different regulatory areas, including securities law (CMB/SPK), payment systems (CBRT, Law No. 6493), banking law (BRSA), e-money regulations, crypto-asset law (New Crypto Asset Law), commercial law (TCC), contract law (TCO), and anti-money laundering (FIU/MASAK). Our firm helps clients navigate this complex web of rules by identifying clear lines of responsibility, potential grey areas, and highlighting the need for strong coordination among these institutions.

If tokenized notes are considered securities, we provide legal support in preparing the prospectus or issuance document to be submitted to the Capital Markets Board (CMB/SPK), ensuring full compliance in issuance processes such as public offerings or sales to qualified investors, and meticulously managing all authorization processes before the CMB.

Given that the new crypto-asset regulation grants the CMB the authority to determine the principles for issuing and monitoring capital market instruments as crypto assets instead of through the Central Securities Depository (MKK/CSD), we offer proactive consultancy by closely following the relevant secondary regulations and ensuring compliance with these new processes.

If tokenized notes are deemed capital market instruments, we provide detailed guidance on licensing requirements that may apply to Crypto Asset Service Providers (CASPs), such as licensed custody and trading platform intermediation.

We offer consultancy on ensuring full compliance with Banking Regulation and Supervision Agency (BRSA) and Central Bank of the Republic of Turkey (CBRT) regulations when banks or other financial institutions are involved in tokenization activities, including token issuance, custody, or intermediation in transactions.

If tokenized promissory notes incorporate payment functionalities or are integrated into payment systems under Law No. 6493 on Payment and Securities Settlement Systems, Payment Services, and Electronic Money Institutions, we conduct the necessary legal analyses and develop compliance strategies. We closely monitor developments in this field in Turkey, such as tokenization platform initiatives by institutions.

We meticulously ensure that the processing, transfer, and storage of personal data belonging to investors, issuers, and other parties during the tokenization process comply with the Personal Data Protection Law (PDPL/KVKK) and other relevant data protection regulations (e.g., GDPR).

Given the nature of blockchain technology (especially the transparency on public DLTs), a balance must be struck between protecting trade secrets and the confidentiality of financial data. To achieve this balance, we propose technical and legal solutions, including off-chain data storage methods, anonymization techniques, permissioned DLT architectures, or the use of advanced privacy-enhancing technologies (PETs) like Zero-Knowledge Proofs (ZKPs).

We provide legal consultancy services regarding the security of your digital assets and systems within the framework of Information and Communication Technologies Authority (ICTA/BTK) regulations and cybersecurity best practices.

We provide legal support in developing effective communication strategies with all relevant supervisory authorities for your project, such as the Ministry of Commerce, CBRT, CMB, BRSA, ICTA, and PDPA, and in establishing necessary approval mechanisms.

We guide our clients through the application processes for regulatory sandboxes for their innovative tokenized debt projects and assist them in their activities within these sandboxes, actively contributing to the shaping of the legal infrastructure of the sector by participating in legal reform and policy development processes.

Smart contracts are at the heart of tokenization, automatically executing pre-defined rules. However, this technological certainty must be balanced with the flexibility and interpretive nature of law.

As there is no specific legislation in Turkey directly addressing the legal status of smart contracts, their validity and enforceability are comparatively assessed according to the general principles of contract law in the Turkish Code of Obligations (TCO) (offer, acceptance, meeting of minds, capacity, validity conditions, etc.).

We meticulously analyze potential conflicts between the "code is law" principle and provisions of the TCO that allow for judicial intervention, such as contract adaptation (e.g., due to excessive difficulty of performance), rescission, or annulment in cases of error, fraud, or duress. We design smart contract frameworks considering the likelihood that Turkish courts will prioritize equity and public order, especially if rigid code execution leads to manifest injustice or violates mandatory legal provisions.

We provide legal opinions on whether transactions conducted on the blockchain and cryptographic signatures meet the "written form" or "signature" requirements stipulated by the TCO or other laws, in light of current Court of Cassation precedents and legal doctrine.

We ensure the legally compliant and functional modeling of all lifecycle stages of your promissory note/bond within the smart contract logic – from issuance (minting) and initial distribution, through transfer/endorsement processes, the addition of guarantees (aval) or other collateral, principal and interest (coupon) payments (fixed/variable, including partial payments), to redemption at maturity (token burning/archiving), protest procedures in case of default, and even updates or restructuring of contract terms..

In these processes, we provide detailed legal and technical consultancy on the role of digital signatures (integration of qualified electronic signatures (QES), eIDAS compliance, or the sufficiency of blockchain-native cryptographic signatures), the establishment of multi-signature (multi-sig) mechanisms for governance and security, how the unique ID of each tokenized note and its essential information (principal, maturity, interest rate, etc.) will be recorded as metadata in the token, and how all these transactions will be recorded as immutable event logs on the blockchain for auditability.

We particularly focus on ensuring the legal compliance and effectiveness of critical mechanisms such as how the chain of endorsements (ciro silsilesi) will be seamlessly and legally validly tracked on the blockchain, how recourse rights will be protected, which token standards and smart contract functions will be used to ensure negotiability, and how the transfer of the token can be frozen (freeze functions) in cases of potential pledge or attachment.

Recognizing that coding errors, logic flaws, or security vulnerabilities (such as re-entrancy attacks, integer overflow/underflow) in smart contracts can lead to severe and often irreversible financial losses, we emphasize the critical need for using robust and tested design patterns, formal verification methods, and comprehensive security audits conducted by independent organizations.

We provide legal assessment services regarding the determination of legal requirements for security audits during and after the smart contract development process, the legal validity of these audit reports, and whether they can serve as evidence in a potential dispute.

Every sector and financial need has its own unique dynamics. Genesis Law Firm offers bespoke legal solutions for different use cases:

Digital Promissory Notes for Individual Borrowing (P2P and Micro Loans): In the tokenization of promissory notes for peer-to-peer (P2P) debt relationships or individual non-commercial borrowing, especially for transactions conducted via P2P lending platforms, we focus on establishing the legal infrastructure. In this context, we ensure full compliance with specific legal requirements under the Consumer Protection Law (CPL), such as the establishment of the contract in written form or via a durable medium, pre-contractual information obligations, the right of withdrawal, and interest rate limitations (especially for consumer loans). We advise our clients on the importance of integrating eIDAS-compliant qualified electronic signatures (QES) or national e-signature infrastructures for the legal validity and evidentiary power of such digital notes.

Commercial Loans, Corporate Debt Instruments, and B2B Financing Solutions: For the tokenization of commercial promissory notes (e.g., discountable trade bills, corporate bonds) and loans obtained by companies, we provide legal guidance considering the specifics of legal relations between merchants, potential integration with MERSİS (Central Registry System), the use of e-seals, and the management of bulk note issuances. We share with our clients the suitability of permissioned DLT infrastructures like Hyperledger Fabric for such scenarios and successful international applications like the Swiss Trust Chain (FQX eNote). While explaining the potential supervisory role of the BRSA and the Ministry of Commerce, we provide strategic legal support for adapting enforcement procedures specific to negotiable instruments in the Enforcement and Bankruptcy Law (EBL) to digital notes.

Invoicing, Receivables Financing, and Digital Factoring Solutions: In processes involving the tokenization of company invoice receivables or other trade receivables to secure financing (digital factoring), we provide comprehensive legal support regarding the legal structuring of collateralization mechanisms and full compliance with Financial Crimes Investigation Board (MASAK) regulations and general AML (Anti-Money Laundering) obligations. We detail the technical operation of pioneering protocols like Centrifuge Tinlake (e.g., locking invoices as NFTs for collateral, fractionalization and offering to investors through DROP/TIN tokens) and their compliance with Turkish law. We assess the legal risks in data verification (preventing the tokenization of the same receivable multiple times) and the legally valid integration of physical collateral elements (such as bills of lading) into digital tokenization processes.

Securitization and Asset-Backed Investment Products: We focus on the legal structuring of processes where multiple promissory notes, loan receivables, or other assets generating periodic cash flows are pooled (asset pool), and tokens qualifying as securities (similar to asset-backed securities - ABS or VDMK in Turkish law) are sold to investors against the future cash flows to be generated from this pool. We provide strategic consultancy on Capital Markets Board (CMB/SPK) approval processes, compliance with relevant CMB communiqués such as the Communiqué on Asset Finance Funds and Asset-Backed or Mortgage-Backed Securities (II-58.1 and III-58.1), and potential integration with the Central Securities Depository (MKK/CSD). We offer guidance on preparing the prospectus or issuance document to be presented to investors, fulfilling public disclosure obligations, and ensuring CMB oversight and supervision if these tokens are to be traded on secondary markets (regulated exchanges or alternative trading platforms).

Development Finance and Tokenization of Government Debt Instruments: We provide legal consultancy on the tokenization of debt instruments or financial commitments used by government treasuries, public institutions, or international financial organizations (Multilateral Development Banks - MDBs) (e.g., the Project Promissa initiative by the Bank for International Settlements - BIS). We evaluate the legal infrastructure of such projects, including the benefits derived from multilateral digital signature mechanisms, data privacy, sovereignty protection, and the elimination of the need for reconciliation among parties. We explain to our clients the importance of using permissioned DLT platforms (e.g., Canton network) in such projects in terms of regulatory compliance, data control, and operational efficiency.

Digitalization of Trade Finance and Secured Transactions: We analyze the potential for digitalizing and tokenizing instruments frequently used in international trade, such as bills of exchange, promissory notes, and letters of credit (L/C). In this context, we offer advanced consultancy on the adaptation of international standards and model laws, such as the Digital Negotiable Instruments (DNI) initiative by the International Trade and Forfaiting Association (ITFA) and the UNCITRAL Model Law on Electronic Transferable Records (MLETR), to Turkish law and the legal validity of cross-border digital commercial notes.

Innovative financial technologies can also bring about unique legal disputes. Genesis Law Firm, with its expert team, is by your side to protect your rights in any conflict that may arise in the world of digital assets:

We provide legal guidance on the adaptation of special enforcement procedures specific to negotiable instruments in the Enforcement and Bankruptcy Law (EBL) to digital notes and DLT records for the collection of receivables arising from tokenized promissory notes or other digital debt instruments.

Particularly in cases of fraudulent or unauthorized transfer of a digital note (token), we conduct in-depth evaluations for our clients on the legal status of a bona fide third party (good faith purchaser), legal theories such as "the person holding and controlling the token in their wallet is presumed to be the legitimate holder unless proven otherwise" or the "holder of record" principle, and the reflections of international precedents (e.g., the "qualified purchaser" concept in UCC Article 12) in Turkish law, along with potential legal remedies.

We effectively represent our clients before courts, arbitration tribunals, and alternative dispute resolution mechanisms (mediation, etc.) in all kinds of legal disputes arising from smart contract errors, coding vulnerabilities, oracle manipulations, or the interpretation of tokenized notes.

We analyze the applicability and flexibility of traditional legal remedies against the immutability of smart contracts and the "code is law" principle, and the limits of these within the general principles of Turkish law (good faith, equity, judicial intervention in contracts), offering our clients the most appropriate litigation strategies.

At Genesis Law Firm, we aim to go beyond merely complying with existing laws by actively contributing to the development of the legal framework in the field of promissory note tokenization and digital asset law:

Expert Support in Legislative Drafting and Policy-Making Processes: We provide expert opinions and constructive contributions in processes for remedying existing legislative gaps in the tokenization of promissory notes and the broader digital asset space, and in the preparation of new draft laws, regulations, and communiqués, in collaboration with regulatory authorities, industry associations, and other stakeholders. We particularly provide information on the content of past draft laws (such as the one envisioning an electronic bond circulation via a central registration system like ÇEBİS, which came to public attention in 2019) and their relation to current technological developments and the new Crypto Asset Law.

Consultancy on Harmonization with International Model Laws and Standards: We offer consultancy and strategic guidance on the adaptation of internationally accepted model laws and best practices, such as the UNCITRAL Model Law on Electronic Transferable Records (MLETR), into the Turkish legal system, and on mutual recognition agreements, thereby supporting our clients' integration into the international digital economy. We emphasize the importance of continuous dialogue and collaboration among regulators, financial institutions, technology providers, and legal professionals to address legal uncertainties, establish reliable technical standards, and develop an effective market infrastructure in this field.

At Genesis Law Firm, we are committed to providing our clients with all the expertise, experience, and strategic perspective required to realize their visions with legal confidence, manage risks, and maximize opportunities in a groundbreaking financial technology area such as the tokenization of promissory notes (bonds). We are here to build the future of digital finance together.