Tokenized Private Stocks Face Criticism Over Lack of Liquidity and Legal Clarity

Tokenized private stocks are being criticized for failing to deliver on the fundamental promise of blockchain-based democratization in finance. Despite the allure of 24/7 trading and broader access to high-value assets, current offerings are often described as digital wrappers on opaque and illiquid markets [1]. The core issue lies in the lack of enforceable equity rights, unclear ownership structures, and limited investor protections, which make tokenized private stocks riskier and more complex than traditional alternatives [1].

Retail investors purchasing tokenized private stocks may find themselves locked into instruments with no guaranteed exit and minimal legal recourse [1]. This contrasts sharply with the initial vision of tokenization, which aimed to break down barriers to entry and increase transparency in previously restricted markets [1]. Instead, the current model introduces new layers of complexity around regulation and asset custody, often without addressing the underlying issues of illiquidity and opacity [1].

For tokenization of private company shares to succeed, it must be built on enforceable legal frameworks that ensure investors have clear ownership rights and economic benefits, such as the ability to transfer ownership and receive dividends [1]. Additionally, platforms need to establish traceable ownership records on-chain and ensure explicit support from the private companies involved. Without these foundational elements, tokenized private stocks risk being seen as superficial digital assets rather than legitimate financial instruments [1].

The success of tokenization in other asset classes—such as real estate—demonstrates its potential when applied correctly. The tokenized real estate market, valued at $3.2 billion in 2024, is projected to grow at a 21% annual rate and reach $19.4 billion by 2034 [1]. This growth is attributed to tokenization’s ability to fractionalize high-value assets, increase liquidity, and bring transparency to traditionally opaque markets. These same principles could apply to private stocks if the infrastructure is properly designed to support democratization and traceability [1].

Critics argue that tokenized private stocks are currently more about perception than substance. Without a clear pathway to liquidity and enforceable rights, they remain inaccessible and inefficient, failing to deliver the decentralization they claim to offer [1]. However, the potential for tokenized private stocks to bridge the gap between private and public markets remains significant. If platforms establish unified secondary markets, implement robust investor protections, and secure company backing, tokenized private stocks could become a transformative tool in the crypto industry [1].

To achieve this, the real-world asset (RWA) community must refocus on the core principles of tokenization: transparency, accessibility, and trust. If these are upheld, tokenized private stocks could evolve into a legitimate and powerful investment vehicle. Failing to do so risks not only undermining the credibility of tokenization but also limiting its potential to reshape modern finance [1].

Source:

[1] Tokenized private stocks have a fundamental problem | Opinion (https://coinmarketcap.com/community/articles/68a0d3f8834bb21904881a75/)