Technological advancements and the evolution of capital markets have led to astonishing valuations for private companies like OpenAI and SpaceX, providing investors with new investment opportunities while seeking high returns. OpenAI recently reached a valuation of $500 billion, surpassing SpaceX to become the most valuable private company in the world. However, most of these companies are private, making it difficult for ordinary retail investors to access them, which has become one of the biggest challenges facing investors today. Now, through tokenizing, investors have an alternative channel to own tokens of private companies. What are the opportunities and risks of investing in private company tokens? Below is a summary of a report translated by CNBC.
New Opportunities for Investing in Private Companies
In recent years, the emergence of tokenization technology has allowed retail investors to participate in these high-growth companies. Tokenization essentially utilizes blockchain technology to convert portions of a company's assets or shares into tradable tokens. These tokens do not directly equate to shares, but they reflect the potential value of the company's future performance. Such innovation has brought significant changes to the traditional equity market, providing investors with a brand new channel.
The financial platform Republic recently launched SpaceX tokens, which are linked to the performance of SpaceX's private shares. Robinhood has also further expanded its cryptocurrency business, offering European users tokenized shares of OpenAI and SpaceX. The tokenization of private companies signifies a major innovation in capital markets that could disrupt the way ordinary retail investors participate in high-growth company investments.
Tokenization: How It Can Change the Game?
Tokenization is not a completely new concept. In fact, asset tokenization has a history of over four hundred years in the financial services sector. The earliest examples include stock certificates, which symbolize shareholder ownership. With the maturation of blockchain technology, tokenization has not only become more efficient but also allows for faster and cheaper asset transfers. Its advantage lies in enabling more people to participate in high-value assets that were previously inaccessible, providing greater liquidity for these assets.
A typical example of tokenization is stablecoins, which are pegged to fiat currencies (such as the US dollar) and can circulate and trade freely on the blockchain. Today, private markets are also adopting this new technology, allowing investors to more easily access previously high-barrier private company shares, achieving decentralized investment opportunities.
However, tokens are not equity, and tokenization does not come without risks. When private companies choose not to go public, investors can only make 'indirect investments' through these tokenized assets and bear the associated risks. This form of investment does not fully equate to traditional equity investment, and investors may not have the legal rights of shareholders, such as participating in shareholder meetings, electing board members, or receiving dividend distributions. OpenAI has publicly stated that it does not support the tokenization of their company.
Risks and Regulatory Challenges
Although tokenization offers new investment channels for retail investors, it also brings regulatory challenges. The rapid development of blockchain technology far exceeds existing legal and regulatory mechanisms, and many regulatory agencies in various countries still struggle to effectively respond to this emerging field. This means that tokenized investment products may lack sufficient legal protection and transparency, making it difficult for investors to ensure their rights are not infringed upon.
Currently, the private company shares that are tokenized are mostly issued by third-party platforms, and these tokens only represent a bet on the future performance of the company. This also means that when a private company chooses not to go public, the tokens held by investors do not equate to actual ownership of the company's shares. Even if the value of the tokens may rise with the company's development, the rights of investors still have significant gaps compared to formal shareholders.
Furthermore, regulatory bodies still have questions regarding the applicability and legal validity of this new technology. The chairman of the U.S. Securities and Exchange Commission (SEC) has pointed out that the innovations in tokenization should receive attention from regulators to ensure market transparency and protect investors' interests. However, overly strict regulation may also limit the development of this technology, so balancing innovation with risk has become a pressing issue for regulatory agencies to address.
Challenges and Opportunities for Investors
Although tokenization provides retail investors with unprecedented investment opportunities, experts point out that this remains a risky area. The biggest attraction of tokenization is that it allows ordinary investors to enter private companies with significant growth potential, which are inaccessible in the public market. However, this also means that investors need to be more cautious, especially when selecting investment targets, and must conduct thorough due diligence on the assets they invest in.
For example, some investors may choose to participate in tokenized investments in high-tech companies like OpenAI or SpaceX, but these tokens do not represent shares in the traditional sense. Therefore, investors need to understand what their tokens truly represent and maintain a clear understanding of future returns.
Historical data shows that private market returns often outperform public markets, making the private market an area worth paying attention to for investors willing to take on high risks. However, for most retail investors, these investment opportunities still come with uncertainties that require cautious consideration.
Tokenization, as an emerging innovation in capital markets, is rapidly changing the investment landscape. It provides retail investors with unprecedented opportunities to access private company assets traditionally controlled by institutional investors and high-net-worth individuals. However, this emerging technology still faces numerous regulatory and legal challenges, requiring investors to fully understand the associated risks and opportunities before deciding whether to participate.
Although tokenization is still in its early stages of development, it has the potential to change our understanding of capital markets. In the future, this technology could become the infrastructure behind all assets, providing more equal opportunities for global investors. However, for ordinary investors, the most important advice remains: always do your homework, carefully choose investment targets, and understand the risks you face.
This article asks: Want to invest in OpenAI or SpaceX? You should understand the potential and risks of 'tokenization'. Originally appeared in Chain News ABMedia.