The real challenge is to encode the three "Old World" issues of ownership, transferability, and trading infrastructure.
Written by: Mankiw
In the past few months, the topic of tokenization in the U.S. stock market has gained significant traction, with a number of "stock token" platforms aimed at overseas users launching one after another. Major platforms like Robinhood are continuously taking action, while others like Jarsy and Republic are discussing moving the rights of high-quality non-public companies such as SpaceX, xAI, and Stripe "on-chain." Many entrepreneurs and investors are thus eager to explore:
Can the equity of non-public companies be tokenized?
How can it be done in compliance? How significant are the differences across jurisdictions?
What are the possible implementation paths? What are the differences in rights and risks for each path?
As a party A / initiator / investor / platform, how should I implement this?
This article clarifies these questions: whether it can be done, how to do it, and what it can look like.
Can the equity of non-public companies be tokenized?
The answer is: Yes. Securities laws in various jurisdictions do not prohibit using "tokens" as a more efficient electronic certificate to represent equity or its economic rights; regulators are always concerned about what rights you are selling, how they are transferred, and where they are traded, rather than whether you are using blockchain.
Why is it possible? (Core Logic)
Medium Neutrality: Equity can be represented by paper stock certificates, electronic registrations, or on-chain certificates; as long as the existing securities laws regarding information disclosure, investor suitability, and ongoing compliance requirements are met, the technical form will not be inherently denied.
Verifiable Efficiency: On-chain registration, transfer, and clearing-settlement are arranged on an auditable track, reducing human involvement and counterparty risk, facilitating cross-border collaboration and automatic performance.
Genuine Market Demand: Pre-IPO assets are of high quality but low liquidity; tokenization can achieve better allocation, pricing, and exit design within the scope of qualified investors.
To what extent can it be done? (Realistic Boundaries)
Start with qualified investors: Most jurisdictions currently support participation primarily from professional/qualified investors (such as "PI/AI/QIB"), while retail access remains limited in the short term due to information asymmetry and suitability requirements.
Secondary liquidity has "layers": Tokenization does not change the essence of "restricted securities"; whitelists (compliance registries) and lock-up periods still exist, and real liquidity mostly occurs in regulated venues.
Cooperation from issuers is key: Without the issuer's consent or proper handling of ROFR (Right of First Refusal), even if sales are possible, it is difficult to fully realize shareholder rights, at most just economic rights.
When should it not be done? (Red Lines)
Ownership is unclear: There are no certificates for the underlying shares corresponding to "1:1," no custody/transfer records, or inability to prove the true source.
Commitments are unenforceable: Claiming "1:1 exchange for shares" without transfer agent and issuer cooperation clauses.
Cross-border marketing oversteps: Treating "globally sellable" as a slogan while ignoring local securities laws and the red line of "active solicitation."
Therefore, the equity of non-public companies can be tokenized, legally viewed as "rights and rules," and technically done as "verifiable and controllable." By clarifying ownership, transferability, and compliant venues, tokenization can not only be done but can also be done stably.
Three Types of Tokenization Methods
1. True Shares on Chain (Directly moving "equity itself" on-chain)
Definition: This method of tokenization means that the token = the stock itself, with token transfers synchronized with updates to the shareholder register.
When to choose it: When the issuer is willing to cooperate with governance transformation, pursuing the "most complete rights and best secondary access" long-term route.
Implementation Focus (only focus on three things):
Articles and Register: The company’s articles allow for on-chain registration; connect with the transfer agent (responsible for registration and transfer).
Venue and Settlement: Identify regulated secondary venues (such as ATS (Alternative Trading System, a secondary market facility regulated by the SEC in the U.S.), MTF (Multilateral Trading Facility in the EU, a matching venue regulated by MiFID)) and clearing-settlement links.
12(g) Management (U.S. Securities Exchange Act Section 12(g), which sets thresholds for public company registration based on the number of "record holders" and asset size): Control statistical criteria and numbers to avoid turning private placements into "quasi-public companies."
Signals for not choosing it: The issuer does not amend the articles, does not cooperate with transfers, or cannot bear the costs of disclosure/audit and holder management.
2. Economic Rights / Contractual Exposure (like shares, but not shares)
Definition: This method of tokenization means that the token carries economic results such as returns/rebuy/event settlement, and legally you are usually not a shareholder.
When to choose it: When you want to go live quickly and test the waters, and the issuer temporarily does not open the shareholder register, but there is strong market demand.
Implementation Focus (only focus on three things):
Redemption terms must be enforceable: Clearly define the triggering events, timelines, responsible parties, and fallback for failures.
Compliance Dual Track: Use Reg D 506(c) (which allows public solicitation but only issues to qualified investors) + overseas Reg S (which requires offshore transactions and prohibits targeting the U.S. market); separate channels to avoid "integration."
Transferability on-chain: Contractualize/program the whitelist, lock-up periods, and restricted resale statements (Legend) to avoid merely being in the PDF of issuance documents.
Signals for not choosing it: Marketing implies "you are a shareholder," or promises "1:1 exchange for shares" without transfer agent/issuer cooperation clauses.
Reminder: Different platforms with the same name for assets are not interchangeable; price anchors (recent financing/offers/NAV) and redemption path differences can lead to shadow market price discrepancies.
3. Fund / SPV Share Tokenization (Indirectly holding multiple assets)
Definition: This method of tokenization means that the token represents shares of a fund/LP/SPV, which in turn holds multiple Pre-IPO companies.
When to choose it: Aimed at institutions/family offices/high-net-worth individuals, pursuing institutional governance, auditable net value, and more stable compliance for secondary connections.
Implementation Focus (only focus on three things):
Contracts and Disclosure: The fund contract clearly outlines redemption windows and side pockets; valuation criteria and major event revaluation are clearly written.
Fee Transparency: Fund fees, platform fees, and channel fees are disclosed layer by layer, ensuring investors can clearly understand.
Secondary Engagement: Prioritize access to regulated venues (e.g., ATS/MTF/RMO), with circulation primarily within the layers.
Signals for not choosing it: Only wanting to bet on a single hot spot, being very sensitive to lock-up and liquidity windows, or having low tolerance for "multi-layer fees."
How to choose among these three methods?
For the hardest rights: Choose 1 True Shares on Chain (provided the issuer truly cooperates).
For speed and flexibility: Choose 2 Economic Rights (but embed "redemption chain" and "restricted transfer" in code).
For institutional and stability: Choose 3 Fund / SPV Shares (use disclosure and net value for credibility, with secondary transactions going through regulated venues).
How to do it in compliance: The "Bottom Line and Channels" of the Four Major Jurisdictions
(1) United States
Positioning: Regulators look at "what securities you are selling, to whom, and how they are transferred," not whether you are using blockchain.
Possible Issuance Channels (choose one or a combination)
Reg D 506(b) (Regulation D 506(b), private placement exemption under the Securities Act of 1933): No public solicitation; can include a small number of non-qualified but financially mature investors; no limit on amounts; Form D (federal filing within 15 days after issuance).
Reg D 506(c) (allows public solicitation but only issues to qualified investors): Must substantiate "qualified" (Accredited) through substantial verification (third-party verification letters/tax forms, etc.).
Reg S (Regulation S, offshore safe harbor): Offshore transactions + no directed selling efforts towards the U.S. market. Often combined with Reg D to cover "within the U.S. + offshore."
How to achieve secondary liquidity
Rule 144/144A (rules for resale of restricted securities; 144A is for QIB, Qualified Institutional Buyer): Determines who can transfer to whom and when. ATS (Alternative Trading System, an alternative trading system regulated by FINRA/SEC in the U.S.): If you want "true secondary," connect to ATS; otherwise, it is mostly for internal redemptions/internal matching.
Embed restrictions in code: Whitelists (only qualified/KYC addresses can hold/transfer), lock-up periods, and Legends (restricted resale statements) must be on-chain, not just written in the PPM.
Pitfalls to avoid
Integration Risk: Any public marketing during the 506(b) period, or using the same domain name/sales funnel for 506(c)/Reg S, may be viewed as a single issuance and lose exemption.
12(g) (Section 12(g) of the Exchange Act, triggering the threshold for public company registration based on "record holders"): The statistical criteria for nominal holders/on-chain multiple addresses must be consistent to avoid "multiple wallets = multiple people."
One-sentence judgment: Reg D 506(c) + Reg S dual track is the most commonly used; the nature of restricted securities remains unchanged, first nail down the whitelist + ATS, then discuss "liquidity."
(2) Hong Kong
Positioning: Equity tokens = securities; not something that a general VATP (Virtual Asset Trading Platform) can handle as "non-securities VA."
Possible Issuance/Sales Channels
Private placements only for PI (Professional Investors); public solicitation/advertising easily triggers licensing/approval obligations.
If you want to facilitate trading, it usually involves Type 1 (Dealing in Securities) and/or Type 7 (Providing Automated Trading Services), where ATS (Automated Trading Services, Hong Kong terminology) requires SFC approval; do not attempt to fit securities tokens into VATP.
How to achieve secondary liquidity
Secondary liquidity should primarily come from regulated securities venues (provided by licensed corporations for matching/settlement); currently mainly aimed at PIs, with limited retail space.
Pitfalls to avoid
Active marketing vs. passive access: Chinese pages, pricing in HKD, advertising in Hong Kong media/customer service calls may be viewed as actively soliciting the Hong Kong public.
One-sentence judgment: Doing securities tokens in Hong Kong = securities license route + only for PIs; VATP route is not applicable.
(3) Singapore
Positioning: Security tokens fall under the SFA (Securities and Futures Act); they are part of a capital market product system, distinct from the DPT (Digital Payment Token) under the PSA (Payment Services Act).
Possible Issuance / Venues
AI/II private placement offers (Accredited/Institutional Investor) can use prospectus exemptions, but there are advertising and transfer restrictions.
RMO/AE (Recognised Market Operator / Approved Exchange): If you want to facilitate trading, you must operate under an RMO/AE framework.
VCC (Variable Capital Company): A friendly shell for holding funds/portfolios, suitable for "3 Fund/SPV Shares."
How to achieve secondary liquidity
Primarily through RMO on-site matching, targeting AI/II; can connect with regulated offshore venues for cross-venue settlements.
Pitfalls to avoid
Substantial presence: Having a team/operations in Singapore, even if the servers are overseas, may be deemed as providing regulated activities in Singapore.
One-sentence judgment: For a stable implementation, SFA private placement + RMO is the main route; PSA/DPT does not address the issue of security tokens.
(4) European Union
Positioning: Security tokens are still subject to MiFID II (Markets in Financial Instruments Directive II) and CSDR (Central Securities Depositories Regulation); MiCA (Markets in Crypto-Assets) does not cover security tokens.
Possible Issuance / Venues
Regular prospectus regime or exemptions for placements;
DLT Pilot (Regulation 2022/858, Distributed Ledger Technology Market Infrastructure Pilot): Permits DLT MTF/SS/TSS (DLT Multilateral Trading Facility / Settlement System / Trading Settlement System) to pilot trading + settlement on-chain under limited scale and category.
How to achieve secondary liquidity
Connect to MTF or DLT MTF for compliant matching and settlement; otherwise, only internal redemptions or contractual transfers are possible.
Pitfalls to avoid
Assuming MiCA is a pass for security tokens; or using "white paper-style" disclosures instead of prospectus/key information document standards.
One-sentence judgment: For "true shares/true bonds" on-chain, DLT Pilot + MTF is the correct path; otherwise, follow the traditional MiFID route, where technology is merely a medium.
Summary:
How to choose issuance: The most universal combination is U.S. Reg D 506(c) (public solicitation allowed) + Reg S (offshore safe harbor); Hong Kong/Singapore/EU follow their respective private placement/exemption criteria.
How to resolve secondary issues: The nature of restricted securities remains unchanged; whitelists/lock-up periods/Legends must be contractualized and traded in regulated venues (U.S. ATS, EU MTF/DLT MTF, Singapore RMO).
How to conduct marketing: Design channel segmentation and anti-integration strategies according to jurisdictions to avoid "one funnel selling globally."
How to mitigate risks: First, solidify ownership and issuer consent; then write transferability into code; finally, discuss valuation and liquidity.
What we can provide
We excel at turning a "narrative" into a legally issuable, compliant, and contractually fulfilled product. I will first clean up the underlying risks (clarity of equity sources, issuer consent, and transfer restrictions) and then provide a one-page decision: whether this can be done, the most time- and cost-efficient path, and what resources and timelines are needed. Subsequently, I will write the rules for issuance, transfer, disclosure, and risk control into contracts and systems (not just in a PPT), and connect the product to regulated secondary markets to ensure it is "tradeable" and "settleable."
What you ultimately receive is not a pile of legal jargon, but a set of actionable deliverables: a clear roadmap with key milestones, externally usable legal opinions, complete issuance documents, compliance rules written into code, secondary liquidity plans, and contingency plans, as well as a set of operational norms acceptable to banks and regulators. In short— I help you turn uncertainty into certainty, making risks visible, processes controllable, and outcomes verifiable.
Conclusion
Tokenization is not "turning equity into tokens." The real challenge is to encode the three "Old World" issues of ownership, transferability, and trading infrastructure, allowing them to operate stably across multiple jurisdictions. The consistent recommendation is to first clarify the legal aspects, then write the code correctly: first nail down issuer consent/ROFR, 12(g) thresholds, distribution periods and whitelists, and clearing-settlement paths, before discussing valuation, liquidity, and market education. Achieving this makes the tokenization of non-public company equity a true product, rather than just a narrative.
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