The risks and rewards of tokenization as crypto heavyweights push for it
[July 22, 2025] By
ALAN SUDERMAN
As cryptocurrencies become more intertwined with the traditional
financial system, industry heavyweights are racing for a long-sought
goal of turning real-world assets into digital tokens.
“Tokenization is going to open the door to a massive trading
revolution,” said Vlad Tenev, the CEO of the trading platform Robinhood
at a recent James Bond-themed tokenization launch event in the south of
France.
Advocates say tokenization is the next leap forward in crypto and can
help break down walls that have advantaged the wealthy and make trading
cheaper, more transparent and more accessible for everyday investors.
But critics say tokenization threatens to undermine a century’s worth of
securities law and investor protections that have made the U.S.
financial system the envy of the world. And Robinhood’s push into
tokenizing shares of private companies quickly faced pushback from one
of the world’s most popular startups.
What is tokenization?
The basic idea behind tokenization: Use blockchain technology that
powers cryptocurrencies to create digital tokens as stand-ins for things
like bonds, real estate or even fractional ownership of a piece of art
and that can be traded like crypto by virtually anyone, anywhere at any
time.
The massive growth of stablecoins, which are a type of cryptocurrency
typically bought and sold for $1, has helped fuel the appetite to
tokenize other financial assets, crypto venture capitalist Katie Haun
said on a recent podcast.
She said tokenization will upend investing in ways similar to how
streamers radically changed how people watch television.
“You used to have to sit there on a Thursday night and watch Seinfeld,”
Haun said. “You tune in at a specific time, you don’t get to choose your
program, you couldn’t be watching a program like Squid Games from Korea.
Netflix was market-expanding. In the same way, I think the tokenization
of real-world assets will be market expanding.”
Growing momentum
Robinhood began offering tokenized stock trading of major U.S. public
companies for its European customers earlier this month and gave away
tokens to some customers meant to represent shares in OpenAI and SpaceX,
two highly valued private companies.
Several other firms are diving in. Crypto exchange Kraken also allows
customers outside the U.S. to trade tokenized stocks while Coinbase has
petitioned regulators to open the market to its U.S. customers. Wall
Street giants BlackRock and Franklin Templeton currently offer tokenized
money market funds. McKinsey projects that tokenized assets could reach
$2 trillion by 2030.
Crypto’s golden age
The push for tokenization comes at a heady time in crypto, an industry
that’s seen enormous growth from the creation and early development of
bitcoin more than 15 years ago by libertarian-leaning computer
enthusiasts to a growing acceptance in mainstream finance.
The world’s most popular cryptocurrency is now regularly setting
all-time highs — more than $123,000 on Monday — while other forms of
crypto like stablecoins are exploding in use and the Trump
administration has pledged to usher in what’s been called the “golden
age” for digital assets.
Lee Reiners, a lecturing fellow at Duke University, said the biggest
winners in the push for tokenization could be a small handful of
exchanges like Robinhood that see their trading volumes and influence
spike.
“Which is kind of ironic given the origins of crypto, which was to
bypass intermediaries,” Reiners said.
Trump bump
Interest in tokenization has also gotten a boost thanks to the election
of President Donald Trump, who has made enacting more crypto-friendly
regulations a top priority of his administration and signed a new law
regulating stablecoins on Friday.
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Electronic screens in New York's Times Square announce the Robinhood
IPO, July 29, 2021. (AP Photo/Mark Lennihan, File)
 “Tokenization is an innovation and
we at the SEC should be focused on how do we advance innovation at
the marketplace,” said Securities and Exchange Commission Chairman
Paul Atkins.
Is it legal?
Securities law can be complex and even defining what is a security
can be a hotly debated question, particularly in crypto. The crypto
exchange Binance pulled back offerings of tokenized securities in
2021 after German regulators raised questions about potential
violations of that country’s securities law.
Under Trump, the SEC has taken a much less expansive view than the
previous administration and dropped or paused litigation against
crypto companies that the agency had previously accused of violating
securities law.
Hilary Allen, a professor at the American University Washington
College of Law, said crypto companies have been emboldened by
Trump's victory to be more aggressive in pushing what they can
offer.
“The most pressing risk is (tokenization) being used as a regulatory
arbitrage play as a way of getting around the rules,” she said.
However, the SEC has struck a cautionary tone when it comes to
tokens. Shortly after Robinhood’s announcement, SEC Commissioner
Hester Peirce, who has been an outspoken crypto supporter, issued a
statement saying companies issuing tokenized stock should consider
“their disclosure obligations” under federal law.
“As powerful as blockchain technology is, it does not have magical
abilities to transform the nature of the underlying asset,” Peirce
said.
All eyes on private companies
One of the most closely watched areas of tokenization involves
private companies, which aren’t subject to strict financial
reporting requirements like publicly traded ones.
Many hot startups are not going public as often as they used to and
instead are increasingly relying on wealthy and institutional
investors to raise large sums of money and stay private.
That’s unfair to the little guy, say advocates of tokenization.
“These are massive wealth generators for a very small group of rich,
well-connected insiders who get access to these deals early,” said
Robinhood executive Johann Kerbrat. “Crypto has the power to solve
this inequality.”
“Please be careful”
But Robinhood’s giveaway of tokens meant to represent an investment
in OpenAI immediately drew pushback from the company itself, which
said it was not involved in Robinhood’s plan and did not endorse it.
“Any transfer of OpenAI equity requires our approval—we did not
approve any transfer,” OpenAI said on social media. “Please be
careful.”
Public companies have strict public reporting requirements about
their financial health that private companies don’t have to produce.
Such reporting requirements have helped protect investors and give a
legitimacy to the U.S. financial system, said Allen, who said the
push for tokenized sales of shares in private companies is “eerily
familiar” to how things played out before the creation of the SEC
nearly a century ago.
“Where we’re headed is where we were in the 1920s,” she said.
“Door-to-door salesmen offering stocks and bonds, half of it had
nothing behind it, people losing their life savings betting on stuff
they didn’t understand.”
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