The Risks and Rewards of Tokenization: As Crypto Giants Accelerate Their Push

As digital assets become increasingly intertwined with the traditional financial system, leading figures in the cryptocurrency space are fast-tracking efforts to digitize real-world assets through tokenization.

“Tokenization is going to trigger a transformative shift in how we trade,” said Vlad Tenev, CEO of Robinhood, at a recent James Bond-themed event in the south of France focused on the topic.

Supporters claim tokenization is the next evolutionary step for crypto, promising to reduce investment barriers, improve transparency, lower costs, and expand access to traditionally exclusive markets. But critics warn that the approach could bypass essential investor protections and erode a century’s worth of financial regulation in the U.S.

Robinhood’s foray into tokenized shares, particularly those representing private companies, has already faced resistance — including objections from one of the startups it sought to tokenize.

What Is Tokenization?

Tokenization involves converting physical or financial assets into blockchain-based digital tokens. These tokens can represent ownership in anything from real estate and bonds to artwork or shares in a private firm — allowing 24/7 trading, often without intermediaries.

According to venture capitalist Katie Haun, the growth of stablecoins (cryptocurrencies typically pegged to $1) has built momentum for expanding tokenization across other asset classes. On a recent podcast, Haun compared tokenization to the streaming revolution in media.

“Just like Netflix expanded viewing choices beyond fixed TV schedules, tokenization could broaden who can invest and how,” she said. “It’s about accessibility and scalability.”

Tokenization Gathers Speed

Earlier this month, Robinhood introduced tokenized trading for publicly listed U.S. stocks to its European users. The company also distributed tokens simulating ownership in private firms like OpenAI and SpaceX.

Other major players are diving in as well. Kraken, another crypto exchange, enables tokenized stock trading for users outside the U.S., and Coinbase has petitioned U.S. regulators for permission to launch similar services domestically. Meanwhile, investment firms like BlackRock and Franklin Templeton now offer tokenized money market funds. A recent McKinsey report projected that tokenized assets could hit $2 trillion in market value by 2030.

Crypto’s Moment of Momentum

Tokenization is accelerating during a time of major growth in the crypto industry. From its libertarian roots in the creation of Bitcoin, crypto has rapidly gained traction in institutional finance.

Bitcoin recently surpassed $123,000, setting a new record, and stablecoins continue to grow in daily usage. The Trump administration has also contributed to the sector’s optimism, declaring support for what it calls a “golden age” of digital assets.

Lee Reiners, a financial regulation expert at Duke University, noted that tokenization may disproportionately benefit large exchanges like Robinhood, which could see surging transaction volumes and market influence.

“That’s ironic, considering crypto was originally built to avoid middlemen,” he said.

Trump Administration’s Support

Interest in tokenization has also been fueled by President Donald Trump’s return to office. The administration has prioritized crypto-friendly policies, including the signing of a stablecoin regulation bill on Friday.

SEC Chairman Paul Atkins echoed the administration’s tone, saying the agency should foster innovation in token markets. “Tokenization is a step forward, and we should be enabling that progress,” he stated.

Legal Uncertainty Remains

Determining what counts as a security remains a key legal hurdle, especially for tokenized assets. Back in 2021, Binance halted its tokenized stock offerings after German authorities raised legal concerns.

Under the Trump administration, the SEC has taken a less aggressive stance toward crypto regulation. Several enforcement actions against token firms have been dropped or paused, signaling a more permissive environment.

However, legal scholars like Hilary Allen of American University warn that companies may now attempt to exploit regulatory loopholes.

“The danger is tokenization becoming a tool to sidestep established rules,” Allen said. “There’s a real risk of regulatory arbitrage here.”

Even within the SEC, caution persists. Commissioner Hester Peirce, known for her support of crypto, reminded companies that tokenized stock offerings must still comply with federal disclosure laws.

“Blockchain doesn’t magically change the legal nature of an asset,” she cautioned.

Spotlight on Private Companies

Perhaps the most contentious tokenization efforts involve private firms, which aren’t bound by the same transparency and reporting rules as public corporations.

Many high-profile startups are staying private longer and raising capital through private channels, which limits access for everyday investors. Tokenization advocates argue that this setup favors a small circle of wealthy insiders.

“These deals generate massive wealth — but only for a select few,” said Johann Kerbrat, a Robinhood executive. “Crypto has the potential to democratize that opportunity.”

However, Robinhood’s move to distribute tokens linked to OpenAI’s private shares quickly drew backlash. OpenAI responded publicly, clarifying it had not approved any such arrangement.

“Any sale or transfer of our equity requires our approval. We have not granted it,” the company said. “Please exercise caution.”

Echoes of the Past

Allen expressed concern that the push for tokenized shares in private companies echoes the unregulated market conditions of the 1920s — a time when fraudulent stock sales were common and investor protections were minimal.

“We’re heading back to the days before the SEC existed,” she warned. “Back then, people were sold worthless investments by door-to-door salesmen. Without safeguards, we risk repeating that history.”