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Tokenization’s Liquidity Gap: Why Is Infrastructure the Missing Link?
Asset tokenization has been heralded as the next big evolution in capital markets, with predictions suggesting the market could grow from roughly $600 billion today to as much as $16 trillion by the end of the decade.
Despite years of enthusiasm, corporate pilots, and regulatory experiments, tokenized securities have not achieved the scale or liquidity that many expected.
In a recent episode Capital Ideas, Jim DowdFounder and CEO Northern CapitalHe argued that the problem is not blockchain technology itself, but fragmented market infrastructure.
Dowd joins the hosts Nick Morgan, Mark HiraideAnd Dara Albright to dispute launch NowA new network designed to connect Alternative Trading Systems (ATSs) operate in private and tokenized securities markets.
Why Is Tokenization Resonating Now?
According to Dowd, traditional financial institutions are increasingly interested in tokenization not because it is speculative, but because it promises efficiency in capital formation.
Traditional financial institutions are increasingly interested in tokenization, not because it is speculative, but because it promises efficiency in capital formation
The exempt securities market, valued at approximately $3 trillion annually, has become the dominant arena for capital raising in the United States. Yet it remains silent, transparent and operationally inefficient compared to public markets.
The exempt securities market, valued at approximately $3 trillion annually, has become the dominant arena for capital raising in the United States. Yet it remains silent, transparent and operationally inefficient compared to public markets
Tokenization allows assets to be issued, transferred and settled on shared digital ledgers, reducing settlement friction, reducing administrative costs and potentially accelerating settlement.
For issuers, this means more efficient capital raising. For investors, this means clearer records and streamlined transactions.
However, Dowd emphasized that tokenization alone does not create liquidity.
The Liquidity Myth
Dowd challenges this narrative: “Blockchain alone unlocks liquidity.”
Liquidity is not just a function of technology. Interconnected marketplaces require standardized processes, regulatory clarity, and adequate buyer and seller participation. Simply issuing securities on a blockchain does not guarantee transaction volume or market depth.
The reality, Dowd explained, is that tokenized securities are generally held on isolated platforms. Each ATS or marketplace operates within its own silo, limiting order flow across platforms and fragmenting potential liquidity pools. This fragmentation has slowed institutional adoption. Institutional investors need confidence that markets are robust, interconnected and cohesive, not dependent on the isolated ecosystem of a single venue.
Tokenized securities are generally confined to isolated platforms.
Enter the Agora: Connecting the Rails
North Capital’s newly announced partnership t ZERO Implementing Agora aims to address this infrastructure gap.
Agora is described as the first network connecting Alternative Trading Systems for tokenized and private securities.
Rather than functioning as another standalone marketplace, Agora is designed as the connective tissue that connects ATS platforms to enable broader reach, price discovery, and regulatory compliance.
From a regulatory perspective, this structure is important. By operating within the existing ATS framework, Agora works within established securities law structures rather than attempting to circumvent them. This approach may be more acceptable to corporate participants wary of regulatory uncertainty.
The model recognizes that the growth of tokenization will likely occur within the confines of existing securities regulation; Not apart from that.
Blockchain as the Base Layer, Not the Target
Dowd described blockchain as a “base layer” for private markets. In this framework, distributed ledger technology provides the basic rails for issuance, transfer and payment but does not replace the need for regulated venues, compliance systems or investor protections.
When tokenized assets are issued and regulated on shared blockchain infrastructure, payment can be accelerated, transparency improved, and compliance processes automated. But these benefits only scale when multiple marketplaces operate on interoperable rails.
Tokenized securities without linkage run the risk of replicating the same inefficiencies of traditional private markets, only in new technology.
Corporate Adoption Requires Structure
Institutional capital prioritizes regulatory clarity, counterparty risk management and operational stability. Dowd suggested that Agora’s network approach helps address these concerns by creating a coordinated framework rather than a patchwork of isolated digital marketplaces. This can reduce operational risk, expand access to secondary liquidity, and increase trust among broker-dealers, custodians, and compliance teams.
The long-term trajectory of tokenization may depend less on technological advances and more on market installations such as interoperability standards, shared protocols, and regulated connectivity.
Policy: Modernization Without Compromise
From a policy perspective, Dowd emphasized that tokenization does not require giving up investor protections. Instead, regulators and market participants must modernize within existing legal frameworks to accommodate digital infrastructure.
Clear rules on secondary trading of private securities, standardized compliance mechanisms and coordination between ATS operators can accelerate growth while maintaining market integrity.
The challenge is not to prove that blockchain works. It integrates blockchain into regulated capital markets in a way that supports liquidity, transparency and scalability.
The Big Picture
If tokenization is to reach the projected $16 trillion milestone, the industry must move beyond isolated platforms and towards networked market infrastructure that expands participation in private markets.
If tokenization is to reach the projected $16 trillion milestone, the industry must move beyond isolated platforms towards networked market infrastructure that expands participation in private markets.
The next chapter of tokenization may be less about issuing more digital assets and more about engineering interoperable, regulated systems that strengthen liquidity and reduce structural friction.
In this sense, the future of tokenized securities will not be determined solely by blockchain; It will be determined by whether the industry can build the connectivity architecture necessary to support deeper markets, greater access and more flexible capital formation.
Nick Morgan He is the President and Founder ICAN, Investor Choice Lawyers Networkis a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for everyday investors and entrepreneurs. He was previously a partner in the Investigations and White Collar Defense Group. Paul Hastings law firm. Morgan previously served as Senior Litigation Counsel in the SEC’s Enforcement Division. Capital Ideas It is a series created by Morgan and Dara Albright.
