Tokenisation unlocking illiquidity

Illiquidity has long been considered a concern in private market investment, but could tokenization help unlock money flow and active trading? We need to bridge the gap between public and private markets as the capital allocation mechanism is fundamentally broken.

How can tokenization open up access to private companies and other illiquid assets?

I think one thing that the cryptocurrency markets have shown, that when you can tokenize assets and open them up to a whole pool of global investors, some really exciting things start to happen. Certainly today, it's unavoidable the flow, volume and participation that we're seeing in the cryptocurrency markets. If we can use the same underlying principle of tokenization and apply that to real-world assets like securities, shares, bonds, funds, real estate, the whole world of illiquid assets opens up access to a same pool of global investors.

I think you'll start by both getting the access benefits that tokenization brings, and as an additional step, you can also start to think about how tokenization can really power communities around these companies, which is the other benefit that cryptocurrencies and tokenization have shown is quite powerful.

How can tokenization possibly help private companies fundraise?

We live in a strange world today where for some private companies it's easier than ever to raise money. We hear stories about how big unicorns have investors falling over themselves to give them money. But the truth is, the world is much bigger than just these unicorn companies and for the vast majority of SMEs and private companies out there, it's harder than ever to raise capital.

20 years ago, I could go to a bank with a business plan for a new restaurant and start a company. Today, what are my funding options as a private company? I can talk to friends and family, maybe I'll max up my credit cards, but realistically, that's it. Banks aren't going to lend me money. VCs only invest in super high-growth technology companies.

By being able to tokenize these assets and start to think about, how can I offer these to a company's stakeholders, the people who already use my products as a company, my customers, my suppliers, the people who care about my company, and figure out how I can turn some of these stakeholders into shareholders, I think that is a unique and powerful source of funding for private companies.

How does tokenization bridge the gap between public and private markets?

I think that's also a very curious factor about modern capital market. The companies being talked about on Bloomberg are a very small fraction of companies out there, 1% of companies in the world. These don't always reflect the reality of the companies that we have all around us.

We hear stories about how bond yield, real interest rates are 0%, we hear investors complaining all the time that there's too much money and the risk-free rate of return is zero. Yet on the other hand, in private markets, there are people who can't borrow money to save their lives. There are people for whom, capital has just dried up totally. So, something's broken fundamentally about the capital allocation mechanism.

Imagine a single mother, working two jobs to feed her kids. Try going to her and saying that capital is free and there's too much money out there and the rate of borrowing money is 0%. She'll say it’s nonsense for her because she lives in a very different reality.

Part of the reason why we're seeing such interest in the cryptocurrency markets is, it's starting to bridge that divide of public and private. What will matter going forward I think is: what communities am I apart of? Do I believe in participating in that community? And do I actually think that I can invest and get an ownership stake in that community?