Private Company Shares to be Tokenized by 2027, Says Blockworks Research

Private company shares are poised to undergo tokenization within the next four years, according to a recent analysis by Blockworks Research. This development is anticipated to be a significant opportunity in the tokenization of illiquid markets, with a particular focus on private equity. The tokenization process involves converting the rights to an asset into a digital token on a blockchain, which could potentially unlock liquidity and accessibility for private company shares. These shares are traditionally difficult to trade due to their illiquid nature.

This initiative is part of a broader trend in the decentralized finance (DeFi) sector, which aims to integrate institutional investors. The development of purpose-built infrastructure, such as Ondo Chain and Converge, is designed to align with regulatory requirements while leveraging the efficiencies and transparency of open blockchain networks. These platforms are intended to provide institutional investors with ways of engaging with tokenized assets, making the process more efficient and transparent.

Blockworks Research analyst Carlos Gonzalez Campo highlights that the tokenization of private equity makes more sense than public stocks due to the high entry barriers and illiquidity that plague private markets. Unlike public stocks, which are already easily traded on traditional brokerage platforms, tokenized private equity allows investors to access fractional ownership in high-growth private companies. This adds efficiency to valuation dislocations, making it a more attractive option for investors.

Gonzalez Campo also emphasizes that the successful integration of off-chain assets into blockchain ecosystems relies heavily on clear and consistent regulatory frameworks. The coming months are expected to see the greatest opportunities in the tokenization of illiquid markets, particularly private equity. However, the regulatory environment will play a crucial role in determining the success of this initiative.

With the right regulatory guidance in the US, it is expected that shares of private companies like SpaceX and Open AI will be tokenized over the course of the next four years. This development could make highly exclusive private markets more accessible to the public, allowing investors to get a piece of whatever private pie they want. While the idea of making these markets more available has been teased in the past, the potential timeline laid out by Blockworks Research is exciting and could mark a significant shift in the investment landscape.

The collaboration between Securitize and Ethena highlights the growing momentum behind institutional adoption in the DeFi space. Ethena’s Guy Young described the blockchain as filling a “clear gap in the market” as the settlement layer. However, the announcement has also faced criticism, with some questioning the necessity of a new blockchain. Securitize CEO Carlos Domingo clarified that Converge is not a private blockchain and emphasized the importance of a multichain approach. He noted that while Ethereum is a robust platform, it has limitations in terms of flexibility, transaction costs, and finality time. Therefore, there is a need for alternatives that can support the growing demands of institutional investors.

Domingo also pointed out that DeFi has been stagnant since the DeFi summer in 2021, acting as a barrier to a full-on bull market. He believes that institutional adoption is crucial for the growth of DeFi. If Converge can successfully integrate institutional investors and overcome the current barriers, it could pave the way for significant growth in the DeFi sector. The success of this initiative will depend on its ability to provide a secure, efficient, and scalable platform for tokenized assets, catering to the needs of institutional investors.