The financial industry has fallen in love with tokenization: everywhere you look, headlines are booming with the promise that converting real-world assets into blockchain-based tokens will magically inject liquidity into previously illiquid markets and usher in a new era of investing.
But in practice, tokenization risks actually doing the complete opposite. Rather than solving the liquidity problem, it threatens to expose just how illiquid — and in some cases, downright uninvestable — certain assets really can be.
Digital Wrapping Does Not Equal Tradability
Let’s start with the main misconception: if you take an asset that’s hard to sell and wrap it in a digital token, that doesn’t automatically make it easier to trade. Tokenization is a technological tool, not a magic wand capable of conjuring up market demand out of thin air. If an asset is unattractive or opaque, putting it on the blockchain won’t suddenly change that fact and make it desirable.
Real estate projects are a good representation of this. You can buy an apartment directly or buy tokens that represent partial ownership of that apartment. But if the underlying project is fundamentally weak — for example, it’s a poorly located building with low rental demand — then no amount of tokenization will help in any way. A shiny blockchain packaging will, at best, serve as a marketing ploy with no real value behind it.
There are even real-life examples to support this line of thinking, the prime of which is Aspen Coin. Back in 2018, a luxury ski resort in Aspen, Colorado, was partially tokenized, supposedly giving investors access to a slice of prime real estate and a share of future profits.
It was hyped as one of the first tokenized commercial properties, but after all the fanfare settled down, very few buyers actually showed up, and liquidity outcomes fell a lot short of what had been expected. The underlying problem wasn’t technology — it was the lack of real demand. And so, market participation did not follow.
The Illusion of Liquidity
Another big risk when it comes to tokenized assets is the illusion of liquidity. In this regard, they often resemble low-quality crypto coins: there may be very little real liquidity, making it easy for one major player to manipulate prices. If a slick enough market maker comes along, they can simply create a few artificial trades and make it look like people are buying and selling. But scratch the surface, and you’ll find there’s no real liquidity behind it. Everything looks active only on paper.
Take tZERO, for instance. It’s a subsidiary of Overstock, built as a regulated platform for trading tokenized securities — a kind of “NASDAQ of the blockchain,” as it was pitched. On paper, it sounded like the perfect bridge between traditional finance and digital assets. In 2018, the project even conducted a successful STO and raised around $135 million.
In reality, however, the project faced a number of problems. Once again, after an initial flurry of interest, there was no real liquidity and trading activity turned out to be extremely low. Moreover, the sharp increase in the price of the token at the beginning turned out to be artificial — the result of low volumes and possible manipulations.
In the end, the platform failed to attract institutional investors, regulatory restrictions proved more difficult than expected, and Overstock itself was experiencing internal crises. As a result, tZERO has become an example that even a legitimate project can fail without liquidity.
Retail Access Doesn’t Automatically Mean Healthy Markets
One argument you’ll often hear in favor of tokenization is that it opens up private markets to retail investors. That’s true in theory, but greater access is not always a good thing — if anything, retail investors entering the market en masse risks amplifying volatility.
Think about how markets react to hype and speculation. All it takes is one celebrity tweet from Elon Musk about Dogecoin (or anything else), and you see prices spike or crash almost immediately. Now imagine a flood of tokenized real estate or private equity deals available at the click of a button. For assets that lack deep, stable liquidity, the risk of bubbles and sudden collapses is significant.
Tokenization can also create an avenue for marketing questionable assets to retail investors under the guise of “accessibility.” But this is not an investment, but pure speculation, often on an asset that does not even exist in the traditional sense. Instead of democratizing wealth, there’s a very real possibility of democratizing loss.
The Regulatory Challenge
And this brings us to the next big challenge: regulation. Traditional markets have decades-old systems and a large number of intermediaries to help protect investors, enforce compliance, and maintain trust. They ensure that retail investors aren’t easily lured into high-risk or downright fraudulent products.
But who plays that role in a decentralized tokenized market?
A key concept here is product governance — the idea that certain products should only be offered to certain investors, depending on their knowledge, risk tolerance, and financial capacity. In traditional markets, you have layers of qualification. A retail trader can’t just buy a complex derivative or a junk bond from a shady issuer because the system prevents it. But in crypto and tokenized markets, such filters barely exist.
So how do you replicate product governance in a decentralized ecosystem? Right now, no one has a clear answer. You could try to impose the same architecture — a regulated listing venue, KYC processes, qualified investor rules — but crypto’s borderless and decentralized nature makes that highly complicated to enforce. Regulators can fine a traditional exchange like NASDAQ if it misbehaves, but who do they punish when tokens are traded on a decentralized platform run by anonymous validators?
Until regulators solve this matter, tokenization risks creating new blind spots for fraud, manipulation, and retail harm.
Final Thoughts
In short, when it comes to tokenization, we should not confuse technological innovation with market fundamentals. A bad project is still a bad project, even when it’s on the blockchain. A market without real demand won’t magically find it because of clever token wrapping. And retail investors shouldn’t be sold the dream of easy wealth from assets that professionals avoid for a reason.
Tokenization might find some uses in the financial system, but expecting it to fix liquidity is not realistic. More likely, it will show us the truth: some assets are illiquid for a reason — and no amount of digitization can change that.
Eugenia Mykuliak, Founder & Executive Director of B2PRIME Group, a global financial services provider for institutional and professional clients
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