The Promise and Pitfalls of Tokenization

For a long time, investing in private companies felt like being locked out of an exclusive club. Startups and fast-growing private firms were mainly accessible to venture capital funds and wealthy insiders, while retail investors had to wait for an IPO, if it ever came. Tokenization is trying to change that. By turning ownership or economic rights in private companies into blockchain-based tokens, this model aims to make private investing more accessible, transparent, and efficient. The World Economic Forum describes tokenization as a way to modernize financial markets by lowering barriers and reducing friction. The global market for digital securities and tokenized capital was estimated at around $6.4 billion in 2024 and is projected to expand toward roughly $32.8 billion by 2034, driven in part by private markets and security token innovations.

In reality, tokenization is not about replacing traditional laws with code. Most projects use a legal structure, often a special purpose vehicle (SPV), that holds the company’s shares, while investors hold tokens representing economic rights to that SPV. These “security tokens” are issued on blockchains like Ethereum, with smart contracts handling things like transfer restrictions, dividend payouts, and compliance. Platforms such as Securitize have shown how this approach can combine familiar securities law with blockchain efficiency, rather than trying to bypass regulation altogether. Republic, a prominent crowdfunding platform, has gone a step further with “mirror tokens” representing fractional economic interests tied to high‑profile private companies such as SpaceX, Anthropic, and Epic Games, issued on the Solana blockchain and tradable within approved wallets.

Platforms supporting token issuance and secondary trading continue to evolve. Securitize offers regulated security token issuance and investor onboarding; Tokeny Solutions and Polymath provide infrastructure for compliant token creation; ADDX focuses on private equity, credit, and alternatives; and tZERO operates regulated digital securities markets where select tokenized assets can be traded. The appeal for retail investors is easy to understand. Tokenization allows fractional ownership, meaning one does not need a large cheque to get exposure to private companies. It also hints at better liquidity, tokens can, in some cases, be traded on regulated secondary markets instead of being locked up for years. Consulting firms like Boston Consulting Group estimate that tokenized assets, especially private equity and private credit, could grow into a multi-trillion-dollar market over the next decade.

But this is not a risk-free upgrade to private investing. Regulations differ widely across countries, and retail participation is often limited or heavily controlled. Liquidity can be thin, especially during market stress, making it hard to exit positions. Valuation is another challenge, private companies do not have daily price discovery, so token prices can swing on sentiment rather than fundamentals. Regulators like the U.S. SEC have repeatedly emphasized that most of these tokens are still securities and must follow existing investor protection rules.

At its best, tokenization can make private markets feel less distant and more inclusive. At its worst, it can give retail investors a false sense of liquidity and safety just because the asset looks like a crypto token. This technology can open doors, but it does not change the basic truth: private companies are risky, illiquid, and complex. For investors, the real work remains the same, understanding what you own, what rights you actually have, and whether the risk matches your expectations.