Pre-IPO Investing Is Rigged. Tokenization Is How We Unrig It.
Imagine an amusement park where tickets cost $100,000 and you have to wait a year before you can go on any rides. Sounds crazy, right? That’s basically how the pre-IPO stock market feels for regular people today. It’s a VIP club with sky-high barriers to entry. Recently, crypto enthusiasts have proposed tokenized stocks and perpetual futures as a way to open these doors to everyone. One expert argues this won’t solve the underlying issues, but in this edition of Tokenized Insider we’ll break down the debate and see how tokenization could be part of the solution.
Key Takeaways
Pre-IPO = Exclusive Club: Investing in private companies before they go public usually requires huge minimum investments (often $100K+), long lock-up periods, hefty fees, and secretive pricing – basically shutting out everyday investors
Tokenization Promise: Turning those private shares into crypto tokens (or creating perp futures to bet on their price) could let anyone trade a piece of pre-IPO stocks 24/7 with even $100, instead of $100K. This means fractional ownership and global access, like buying a slice of the pie instead of the whole pie.
Why Skeptics Doubt: Critics say you can’t fix a broken engine by just repainting the car. Without a real market for the actual shares (engine), tokenization (the paint) may do more harm than good. No real-time pricing and low liquidity could lead to “toxic” trading conditions that hurt retail traders. Plus, companies and regulators aren’t fully on board yet.
The Middle Ground: The pre-IPO market does need a solid foundation, a functional spot market with better liquidity, lower fees, and legal clarity. However, tokenization can play a role in building that foundation. By wrapping real shares into digital tokens via special structures (SPVs) and listing them on exchanges, we might jump-start liquidity and price discovery in a way traditional platforms couldn’t. Projects like PreStocks and Jarsy are already experimenting with this hybrid approach, treating tokens as a “wrapper” around actual equity.
Big Picture: If done right, tokenized pre-IPO stocks could democratize access to high-growth companies much earlier. It’s not a magic fix-all, but a new toolkit to rebuild the market’s engine rather than just a coat of paint. The goal is a future where anyone can own a small piece of the next SpaceX or OpenAI before it IPOs, without needing to be a millionaire.
Why the Pre-IPO Market Feels “Broken”
The pre-IPO (private stock) market is often described as broken for regular investors because it’s so inaccessible. Here’s why it feels like a rigged game:
Sky-High Entry Fees: Many private share marketplaces demand minimum buys in the six figures (think $100,000 or more), pricing out most people.
Long Lockups: Even if you get in, you typically can’t sell those shares for a year or longer due to legal restrictions (SEC Rule 144) and company policies. It’s like buying a ticket and being told “come back next year to use it.”
Hefty Middleman Cuts: Brokers facilitating these deals charge big commissions (around 2–5%), eating into any gains. Imagine a ticket broker taking a 5% cut and charging you $100K per ticket!
Opaque Pricing: Prices are negotiated in the dark. There’s no transparent order book or real-time price – you might not know if you overpaid by 20% because each trade is a private deal.
No Access for Regular Folks: Most platforms only allow accredited or institutional investors. If you’re not a millionaire or a big fund, you’re usually locked out by design.
In short, pre-IPO investing today is like a VIP-only concert where tickets are sold in bundles of 1000 at secret prices, and you can’t resell your ticket until next year. No wonder it’s called “one of the most inaccessible corners of finance”.
Tokenization & Perps: A New Hope?
Faced with these barriers, crypto innovators have a bold idea: tokenize the pre-IPO stocks or create perpetual futures (perps) so that anyone can trade them. Think of tokenization as turning a share into a digital trading card. Instead of needing $100K, what if you could buy, say, $100 worth of a SpaceX token that represents a small stake in SpaceX’s equity? And what if you could trade that token freely on a crypto exchange at any time, even at 2 AM on a Sunday? That’s the allure.
Perpetual futures add another twist, they let people bet on the price of a stock without actually owning the stock, kind of like betting on a sports game’s outcome instead of owning a team. For example, a SpaceX perp would let you go long or short on SpaceX’s valuation in a decentralized market. Combine tokenized stocks and perps, and suddenly the pre-IPO market sounds a lot more like the crypto markets: always open, accessible worldwide, and friendly to small traders.
The promise is exciting: turn those illiquid, high-priced shares into tradable tokens, use a decentralized exchange as the venue, and voilà, retail investors worldwide get a piece of the action on their terms. This means:
Fractional ownership: You could invest tiny amounts (even $10) instead of $100K, because tokens can be split into small fractions.
24/7 Trading: No need to wait for special auction windows or deals; tokens can trade anytime, just like crypto, providing instant liquidity.
Global access: Anyone with an internet connection (and proper compliance/KYC) could buy these tokens, not just the elite circle of VC funds and accredited investors
Faster settlement: Trades clear in minutes on-chain, versus weeks in traditional broker-negotiated deals.
Transparency: If tokens trade on open markets, prices become visible to everyone in real-time, unlike the opaque pricing now.
In theory, it’s a bit like unlocking the VIP club and letting the crowd in, by issuing many inexpensive “guest passes” (tokens) for the club instead of one exclusive golden ticket.
Why Skeptics Say “Not So Fast”
Not everyone is convinced that tokenization and perps can fix these problems right now. Bankless argue that these solutions might just be “putting icing on a burnt cake.” In other words, if the underlying market is broken, simply tokenizing stocks or creating crypto derivatives won’t magically fix it Here are the main concerns:
Illustration: In the current pre-IPO market, information isn’t evenly shared. Insiders and brokers have the edge on knowing a company’s true value, while regular investors are left in the dark. Market makers (the folks who provide liquidity) fear a “toxic flow” of trades where they’re always at a disadvantage, so they either widen the price spread or bow out. With no one to take the other side of a trade, retail investors face either absurd prices or no trades at all
No Reliable Price Feed: Unlike public stocks, private stocks don’t have a constantly updating market price. Data comes from things like occasional funding rounds or valuation estimates (409A reports), which can be months old and deliberately low-balled for tax reasons. It’s like trying to bet on a horse race when you only know how fast the horse ran last year. If you build a perp or token on such stale info, it’s highly speculative. Early pre-IPO perps might behave more like prediction markets or even casinos, where the odds favor those with insider knowledge.
Toxic Flow & No Market Makers: The few people trading pre-IPO assets now are mostly insiders or professionals who likely know way more about the true value than the average retail trader. Market makers (who normally ensure there’s always a buy/sell quote) fear getting picked off by these informed traders. Since they can’t hedge easily (there’s no underlying stock trading live to offset their risks), they either choose not to make markets or set very wide spreads. For retail folks, that means if you try to trade the token, you’ll see a big gap between buy and sell prices, a bad deal, like a currency exchange booth charging 20% fees. With such poor liquidity, regular traders lose interest fast, defeating the purpose of “access.”
Underlying Shares Still Illiquid: Tokenizing a stock doesn’t change the fact that the actual shares are hard to get and sell. If a token truly represents a share, someone, somewhere has to hold that share and be able to sell it when you want out. Bankless points out that sourcing real shares at scale and keeping a market for them is a huge challenge If a platform doesn’t solve that, the token could diverge wildly from reality or be hard to redeem for real value.
Regulatory and Company Pushback: There’s a big “social alignment” issue. Most private companies hate the idea of their stock floating around on crypto tokens without permission. They often have clauses that any unofficial sale can be voided, meaning if they find out someone tokenized their shares against the rules, they might cancel those shares outright. The last person to know would be the poor retail token-holder who suddenly discovers their token is backed by zero shares. Ouch. Regulators are also wary: in fact, European and US regulators have been urging more oversight on tokenized equities. If tokens are deemed illegal securities sales, platforms and traders could face legal trouble. In short, the law and the companies themselves aren’t fully on the token train yet.
Given these issues, the skeptic’s view is that tokenization or perps right now could actually worsen the situation for retail investors. They argue it’s like adding turbo boosters to a car with a faulty engine, you might just crash faster. The core message: fix the engine first, then add the fancy extras.
Fix the Foundation First: A Functional Spot Market
The Bankless article suggests a clear roadmap: build a proper spot market for pre-IPO stocks first – essentially get the engine running smoothly – before layering on tokens or derivatives. What would this entail?
Real Liquidity: A marketplace where pre-IPO shares can trade more frequently than the occasional private broker deal. This likely means finding a way to allow shorter holding periods (not a full year) and more continuous trading. It could involve legal changes or new mechanisms to let shares change hands more freely.
Lower Fees & Friction: Using tech and better processes to cut down the high fees and long wait times. A more automated platform (maybe even using blockchain internally) could settle trades faster (days or hours instead of weeks) and cheaper.
Investor Protections & Structure: Ensuring that when people buy in, they actually have a claim on something real (the share or economic rights to it), and that this claim is secure even if the platform facilitating it goes bust. This might mean using bankruptcy-remote SPVs or trusts that hold the shares so investors are protected
Transparent Pricing: Establishing some form of price discovery, perhaps regular auctions or an order book, so that there’s a publicly visible price for these shares updated as often as possible.
The Bankless author’s endgame vision: once such a spot market is humming (say you achieve decent daily trading volumes on the top private companies), then you can safely introduce low-leverage perpetual futures using that market’s price as a reliable oracle. At that stage, market makers can hedge their perp positions by trading the spot market (since it’s finally liquid), solving the toxic flow problem. Eventually, tokenization could move the whole operation on-chain, when the time is right. In fact, they admit that in the long run, putting private stocks fully on blockchain rails (with all the DeFi bells and whistles like instant loans, composability, etc.) is a great vision, it’s just “a few years out” due to the current hurdles.
So, in summary, the skeptic says: crawl before you walk. Fix the basic market design first, then use tokenization to enhance it. This perspective is cautious: it doesn’t throw out tokenization entirely, but postpones it until the foundation is solid.
How Tokenization Could Still Be Part of the Solution
Is there a way to use tokenization itself to help fix the underlying market problems? We think yes, if done carefully. The key is to design tokenized stock platforms that address those core issues rather than ignoring them. Here’s how tokenization, as a wrapper or option, can tackle the challenges:
SPV Wrappers: Making Tokens Legally and Practically Work: One approach being tried is to use Special Purpose Vehicles (SPVs) as a buffer. For example, an SPV (basically a holding company or trust) buys a bunch of pre-IPO shares through the normal legal process. Then that SPV issues digital tokens that represent a slice of its holdings. In effect, you and other retail investors hold tokens that give you economic rights to the SPV, and the SPV holds the actual stock. This means the company’s cap table just sees one entry (the SPV), not hundreds of random retail holders, avoiding those transfer approval roadblocks. It’s like having one big container of shares and handing out tickets for pieces of what’s inside. The company can’t easily block internal transfers of the SPV’s ownership, and trades happen via the token. Platforms like PreStocks and Jarsy are using this model, essentially wrapping real equity in a token shell. As long as the SPV is set up right (compliant and bankruptcy-remote), investors know they have a claim on something real
Fractional Access and Lower Barriers: By using tokens, these platforms let people buy very small stakes. Remember those $100K minimums? A token can blow those apart. PreStocks, for instance, allows trading as little as $0.01 of a share value! That’s a game-changer: it transforms the market from exclusive to inclusive. A 10th grader with lunch money (in theory) could invest in a token tied to a private company’s stock. This democratization is one of the core strengths of tokenization, taking something lumpy and illiquid and splitting it into bite-sized, liquid pieces.
Continuous Liquidity via Exchanges: Traditional pre-IPO platforms operate on a deal-by-deal basis (you wait for a matching buyer/seller or a scheduled liquidity event). But if these tokens are listed on a crypto exchange or decentralized exchange (DEX), they can trade continuously. Liquidity can come from market makers or automated liquidity pools that constantly refresh buy/sell offers. This is a big shift in market structure. Instead of waiting weeks for a broker to find a buyer, you could sell your token instantly to someone across the globe. Early on, liquidity might be thin, one project’s tokens had only a few hundred thousand dollars of total assets, so a single whale selling could move the price a lot. But as the user base grows and more tokens are issued, the hope is deeper liquidity pools will form, making the markets more stable and efficient. In other words, tokenization might bootstrap the very spot market liquidity that skeptics say is missing. It’s a bit of a chicken-and-egg, but crypto incentives (like yield farming for providing liquidity, etc.) could help kickstart activity that wouldn’t happen in the old system.
Transparent, Real-Time Pricing: Once these tokens trade on public markets, we start getting real price discovery. For example, if many people are trading a token representing SpaceX equity, the token price reflects what the crowd thinks SpaceX is worth in real-time. This can actually generate a quasi-spot market price even before the company goes public. Yes, it might be volatile and imperfect, but it’s better than opaque broker quotes. Over time, as more data and trading occurs, the pricing becomes more robust. Essentially, the token market can become the spot market that the article’s author wants, just built in a decentralized way.
Programmable Compliance: Smart contract platforms can bake in certain rules to appease regulators or company concerns, for example, whitelisting wallets (so only verified investors trade), or automatically blocking transfers that would violate lockup rules, etc. This kind of programmable regulation could make tokenized markets more palatable to authorities. In fact, not all regulators are against tokenization, there have been signs of openness. The EU, for one, has been loosening restrictions on on-chain stock trading, and even the U.S. SEC has shown newfound enthusiasm for tokenization in some contexts. As the technology proves itself and platforms work with regulators (e.g. using Reg D, Reg S exemptions for tokens), the legal landscape could evolve to support these innovations.
Option-Like Structures: Another idea is to design tokens that behave like options or forwards on the pre-IPO shares, rather than direct equity. For instance, a token could represent the right to the future value of a share when the company goes public or is acquired. This would be similar to how some agreements (like forward contracts) work in traditional venture deals. By structuring it as a derivative, you might avoid some transfer restrictions (since you’re not transferring the share itself, just a claim on its future value). Platforms could then allow trading of this “pre-IPO right” token. It’s complex, but it’s another way to wrap the economic exposure in a potentially more flexible package. Essentially, if the direct road is blocked, create a parallel road (synthetic exposure) that still gets people where they want to go. Ventuals, for example, has taken the pure derivative route, offering perpetual futures on private stocks without holding the stock at all. This solves sourcing shares, but as mentioned, it introduces oracle challenges. A compromise might be low-leverage futures or options that use a mix of real-world data and active token market prices to stay anchored.
The bottom line: Tokenization isn’t a silver bullet, but it can be a catalyst for change. Instead of waiting on the sidelines for the “perfect” spot market to magically appear, tokenization projects are actively building it. They’re experimenting with the legal wrappers, market making, and community participation needed to make pre-IPO trading work. Yes, they must navigate a minefield of regulations and must design carefully to protect investor, but those challenges are being addressed one by one. As these platforms mature, we could see the gap between private and public markets start to close.
Conclusion: Bridging the Gap to Democratize Pre-IPO Investing
The pre-IPO market’s brokenness is real, it’s been a playground for the rich and connected, while everyone else watches from the sidelines. Tokenization, especially when combined with thoughtful market structure (like SPV wrappers, compliance controls, and engaged liquidity providers), offers a new approach to finally fix those issues rather than papering over them. In the analogy of the car: we’re not just painting the old clunker; we’re replacing the engine with a new hybrid one.
Bankless was right about one thing: you can’t ignore the fundamentals. A bad market doesn’t get better just because it’s on a blockchain. But if you use blockchain tech to redesign the market’s fundamentals, making it more open, liquid, and fair, then tokenized stocks could very well be part of the fix. In fact, they might accelerate solving the hardest problem (a functional pre-IPO spot market) by crowdsourcing liquidity and price discovery from a global pool of participants.
For the first time, we’re seeing regular folks get a crack at investing in companies like SpaceX, OpenAI, or Stripe before the IPO pop. It’s early days, and there will be bumps on the way (and certainly lots of regulatory scrutiny), but the direction is promising. Tokenized pre-IPO equity, done right, can turn that $100K club into a mass participation game.
In plain terms: instead of only venture capitalists getting the golden tickets, you might get to buy a tiny golden ticket of your own and potentially enjoy the ride. The pre-IPO market is broken, but with the right tools and guardrails, tokenization could help fix it, transforming it from a closed VIP room into an open marketplace where everyone’s invited.