Why Tokenized Assets Won’t Thrive Without Real Liquidity
Tokenization has often been sold as a revolution for finance: a world where anyone, anywhere, can own a fraction of a building in Manhattan or a piece of a private equity fund with just a few clicks. But according to Carlos Domingo, co-founder and CEO of Securitize, that story is only half true.
Yes, tokenization can dramatically improve access. It can make it technically possible for an investor in another country to buy a digital share of a U.S. property or fund. What it does not automatically solve is the other, equally critical side of the equation: liquidity—the ability to sell that asset quickly, at a fair price, without taking a significant loss.
Domingo stresses that this is where many early experiments with real-world asset (RWA) tokenization ran into trouble. Years ago, when platforms first started issuing blockchain-based representations of assets like real estate, private credit, or art, builders assumed that “putting it on-chain” would magically make those assets easy to trade.
The reality proved very different.
Tokenization Doesn’t Change the Nature of the Underlying Asset
Domingo’s core point is simple: technology can wrap an asset in a new digital form, but it cannot change its fundamental economic characteristics.
“Providing liquidity to the asset class is as important as providing accessibility,” he said in an interview. “And there was a perception that tokenization was going to make those illiquid assets liquid, and that didn’t happen, because an illiquid asset is illiquid whether you tokenize it or not.”
That sentence cuts through much of the hype that has surrounded tokenized assets.
A Manhattan office building is illiquid because:
– It has a small pool of potential buyers.
– Transactions require due diligence, legal work, and regulatory approvals.
– Valuations move slowly, and the asset can’t be sold instantly without a discount.
Turning ownership of that building into digital tokens does not suddenly create thousands of qualified buyers, make regulation disappear, or guarantee a live market 24/7. It might make issuing and managing ownership more efficient, but liquidity still depends on human behavior, market design, and regulation—not just code.
Accessibility vs. Liquidity: Two Very Different Problems
Domingo argues that early tokenization projects over-indexed on the “access” story. They made it easier to issue, fractionalize, and distribute assets, especially across borders. In theory, this allows someone in Tokyo or São Paulo to buy a small stake in a Manhattan property that, in the traditional system, would have been practically unreachable.
But access alone is not enough to build a healthy market. For an investor, two questions matter:
1. How easy is it to get into this investment?
2. How easy is it to get out, and at what cost?
Tokenization has arguably made strong progress on the first question. The second remains the real challenge. Without consistent demand on the other side of the trade, even a beautifully designed token has limited value for investors.
This is where liquidity comes in. A token that can only be bought in a primary offering but rarely traded afterwards is essentially a digital version of a locked-up private investment. For some investors that’s acceptable, but it is very different from the promise many people heard about “tradable tokens” and “24/7 markets.”
Why Early Tokenization Efforts Fell Short
According to Domingo, those who first experimented with digital representations of real-world assets eventually discovered that blockchain infrastructure alone doesn’t guarantee a thriving secondary market.
Several issues got in the way:
– Regulatory constraints often limited which investors could trade, and where.
– Platforms lacked enough market makers and institutional participants willing to quote prices and absorb trades.
– The underlying assets themselves—like private real estate or venture funds—do not change hands frequently by nature, dampening trading activity.
– Many token offerings were isolated, each on their own small marketplace, fragmenting liquidity instead of concentrating it.
As a result, holders of tokenized assets often found themselves in the same position as traditional private-market investors: they could get in, but getting out quickly at a fair value was still difficult.
The Manhattan Example: Ownership Is Only Half the Story
The idea of “owning a slice of Manhattan” has become a popular way to explain the promise of tokenization. For someone overseas, buying a digitally represented share in a U.S. property sounds like a powerful use case.
Domingo’s caution is that the ability to buy is not the end of the story. That overseas investor must also be able to sell that slice without being trapped in a dead market.
If there is no active secondary venue, no market makers, and limited buyer demand, then the token representing that Manhattan interest is just a modern wrapper around a very old problem: illiquidity. The investor might technically own something valuable, but that value remains “on paper” unless it can be realized efficiently.
Liquidity as Infrastructure, Not an Afterthought
To make tokenized assets truly compelling, liquidity must be treated as foundational infrastructure, not a late-stage feature. For Domingo, that means building:
– Regulated marketplaces where tokenized securities can trade within clear legal frameworks.
– Incentive structures for market makers to provide continuous bids and offers.
– Standardization of token formats and compliance rules, so assets can trade across multiple venues instead of being trapped in walled gardens.
– Custody and settlement rails that integrate smoothly with existing financial institutions who can bring serious capital and trading volume.
In other words, tokenization cannot stay a purely technical project. It needs deep integration with capital markets, regulation, and professional intermediaries who specialize in creating and maintaining liquid markets.
Why Investors Care So Much About Liquidity
Liquidity is not just a convenience; it is central to how assets are valued and how investors manage risk.
A liquid asset:
– Can be sold quickly during market stress, giving investors flexibility.
– Tends to have a narrower bid-ask spread, meaning a fairer execution price.
– Makes portfolio rebalancing and risk management more straightforward.
An illiquid asset, by contrast, often comes with:
– A liquidity premium or discount, where buyers demand a lower price to compensate for the difficulty of exiting.
– Longer lock-up periods and more complex legal arrangements.
– Greater uncertainty during crises, when buyers disappear and prices gap down.
If the entire pitch of tokenization is “same asset, better wrapper,” but liquidity does not improve, then for many investors the economic experience remains largely unchanged. What Domingo is calling for is alignment between the narrative and the actual market structure supporting these tokens.
Tokenization’s Real Strength: Efficiency and Reach
None of this means tokenization is useless or overhyped across the board. Domingo acknowledges that digital representations of assets can solve real frictions:
– Automation of compliance checks and investor onboarding.
– Faster, cheaper distribution of securities to a global base of eligible investors.
– Simplified record-keeping and instant settlement on-chain.
– Fractional ownership, lowering the ticket size for participation.
These are meaningful advances. They reduce barriers, streamline operations, and open the door for new business models in asset management and capital formation. But they must go hand in hand with deliberate work on liquidity.
Without that, tokenization risks becoming an efficiency upgrade for issuers rather than a transformative change for investors.
What Needs to Happen Next for Tokenized Markets to Mature
For tokenized assets to move from a niche experiment to a mainstream component of global finance, several developments are likely necessary:
First, regulatory clarity needs to keep improving, especially around secondary trading of tokenized securities. Institutions won’t commit serious resources to markets they perceive as legally ambiguous. Clear rules on who can trade, where, and under what conditions are essential to building durable liquidity.
Second, interoperability across platforms has to increase. When every tokenized real estate deal lives in its own isolated marketplace, each pool of buyers and sellers is too small to support deep liquidity. Standardization—of token formats, identity checks, and settlement mechanisms—can help aggregate demand and make it easier for brokers, exchanges, and custodians to plug in.
Third, large institutions and market makers need commercial incentives to participate. These actors bring the capital, risk appetite, and infrastructure to quote continuous prices, absorb imbalances, and keep spreads tight. Without them, most tokenized assets will remain thinly traded, even if the technology is sound.
Finally, issuers must communicate more candidly to investors about what tokenization does and doesn’t change. Calling a traditionally illiquid product “liquid” just because it is tokenized creates unrealistic expectations and ultimately undermines trust.
Why the Illiquidity Problem Is So Persistent
The reason Domingo’s warning resonates is that illiquidity is not a trivial bug in finance; it is baked into the structure of many valuable assets. Private companies, infrastructure projects, real estate developments, and art cannot be traded like blue-chip stocks because each transaction often requires unique negotiation, local legal work, and bespoke documentation.
Blockchain cannot make a building move faster, a zoning issue disappear, or a buyer suddenly materialize where none existed. It can, however, compress the operational overhead of managing ownership, tracking transfers, and enforcing rules.
This distinction is subtle but crucial. Tokenization can lower the friction around the asset and expand who can access it, but the underlying economics of supply, demand, and deal complexity remain. Recognizing that boundary is key to designing realistic tokenized products and markets.
The Path Forward: Marrying Innovation With Market Reality
Domingo’s position is not anti-tokenization; it is anti-myth. He is effectively arguing that the technology’s real potential will only be realized if the industry confronts the liquidity challenge head-on instead of assuming it will resolve itself.
The future of tokenized assets is likely to be shaped less by flashy narratives and more by disciplined market-building:
– Designing products with realistic lock-up expectations.
– Matching asset types with appropriate investor bases.
– Coordinating issuers, exchanges, and regulators to concentrate, rather than fragment, trading activity.
– Embedding market-making and liquidity provision into the core architecture of tokenized platforms.
If those pieces fall into place, tokenization could genuinely expand participation in asset classes that were once available only to a small group of large investors, while also improving the liquidity profile of at least some of those markets.
Without that foundation, tokenized assets risk becoming a sophisticated form of window dressing—more inclusive in appearance, but not fundamentally more liquid than the traditional instruments they’re meant to replace.
In Domingo’s view, the message is clear: accessibility may open the door, but liquidity is what determines whether anyone truly walks through and stays.