Tokenization’s Liquidity Gap: Why Infrastructure Is the Missing Link
Asset tokenization has been heralded as the next major evolution in capital markets, with projections suggesting the market could grow from roughly $600 billion today to as much as $16 trillion by the conclude of the decade.
Yet despite years of enthusiasm, institutional pilots, and regulatory experimentation, tokenized securities have not achieved the scale or liquidity many anticipated.
In a recent episode of Capital Ideas, Jim Dowd, Founder and CEO of North Capital, argued that the problem is not blockchain technology itself, but fragmented market infrastructure.
Dowd joined hosts Nick Morgan, Mark Hiraide, and Dara Albright to discuss the launch of Agora, a new network designed to connect Alternative Trading Systems (ATSs) operating in the private and tokenized securities markets.
Why Tokenization Is Resonating Now
According to Dowd, traditional financial institutions are increasingly drawn to tokenization not becautilize it is speculative, but becautilize it promises efficiencies in capital formation.
traditional financial institutions are increasingly drawn to tokenization not becautilize it is speculative, but becautilize it promises efficiencies in capital formation
The exempt securities market – valued at approximately $3 trillion annually – has become the dominant venue for raising capital in the United States. Yet it remains siloed, opaque, and operationally inefficient compared to public markets.
The exempt securities market – valued at approximately $3 trillion annually – has become the dominant venue for raising capital in the United States. Yet it remains siloed, opaque, and operationally inefficient compared to public markets
Tokenization enables assets to be issued, transferred, and settled on shared digital ledgers, reducing reconciliation friction, lowering administrative costs, and potentially accelerating settlement.
For issuers, that means more efficient capital raises. For investors, it means clearer records and streamlined transactions.
But Dowd emphasized that tokenization alone does not create liquidity.
The Liquidity Myth
Dowd challenges the narrative that “blockchain, alone, unlocks liquidity.”
Liquidity is not a function of technology alone. It requires interconnected marketplaces, standardized processes, regulatory clarity, and sufficient acquireer and seller participation. Simply issuing a security on a blockchain does not guarantee trading volume or market depth.
The reality, Dowd explained, is that tokenized securities have often been confined within isolated platforms. Each ATS or marketplace operates within its own silo, limiting cross-platform order flow and fragmenting potential liquidity pools. This fragmentation has slowed institutional adoption. Institutional investors require confidence that markets are robust, interconnected, and compliant – not depconcludeent on a single venue’s isolated ecosystem.
tokenized securities have often been confined within isolated platforms
Enter Agora: Connecting the Rails
North Capital’s newly announced partnership with tZERO to launch 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 yet another standalone marketplace, Agora is designed as connective tissue – linking ATS platforms to enable broader access, price discovery, and regulatory alignment.
From a regulatory standpoint, this structure matters. By operating within the existing ATS framework, Agora works inside established securities law constructs rather than attempting to circumvent them. This approach may prove more palatable to institutional participants wary of regulatory uncertainty.
The model recognizes that tokenization’s growth will likely occur within the boundaries of existing securities regulation – not outside of it.
Blockchain as Base Layer, Not Destination
Dowd described blockchain as a “base layer” for private markets. In this framing, distributed ledger technology provides the underlying rails for issuance, transfer, and settlement, but it does not replace the necessary for regulated venues, compliance systems, or investor protections.
When tokenized assets are issued and settled on shared blockchain infrastructure, settlement can accelerate, transparency can improve, and compliance processes can be automated. However, these benefits only scale when multiple marketplaces operate on interoperable rails.
Without connectivity, tokenized securities risk replicating the same inefficiencies of traditional private markets – just on new technology.
Institutional Adoption Requires Structure
Institutional capital prioritizes regulatory clarity, counterparty risk management, and operational stability. Dowd suggested that Agora’s network approach supports address those concerns by creating a coordinated framework rather than a patchwork of isolated digital marketplaces. This could reduce operational risk, expand access to secondary liquidity, and improve confidence among broker-dealers, custodians, and compliance teams.
Tokenization’s long-term trajectory may depconclude less on technological breakthroughs and more on market plumbing such as interoperability standards, shared protocols, and regulated connectivity.
Policy: Modernization Without Compromise
From a policy perspective, Dowd emphasized that tokenization does not require abandoning investor protections. Instead, regulators and market participants must modernize within existing legal frameworks to accommodate digital infrastructure.
Clear rules for secondary trading of private securities, standardized compliance mechanisms, and coordination among ATS operators could accelerate growth while preserving market integrity.
The challenge is not proving blockchain works. It is integrating blockchain into regulated capital markets in a way that supports liquidity, transparency, and scalability.
The Bigger Picture
If tokenization is to reach its projected $16 trillion milestone, the industest must shift beyond isolated platforms toward networked market infrastructure that expands participation across private markets.
If tokenization is to reach its projected $16 trillion milestone, the industest must shift beyond isolated platforms toward networked market infrastructure that expands participation across private markets
Tokenization’s next chapter may be less about issuing more digital assets and more about engineering interoperable, regulated systems that strengthen liquidity and reduce structural friction.
In that sense, the future of tokenized securities will not be determined by blockchain alone, but by whether the industest can build the connective architecture necessary to support deeper markets, greater access, and more resilient capital formation.
Nick Morgan is President and Founder of ICAN, the Investor Choice Advocates Network, 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 at Paul Hastings law firm. Morgan previously served as Senior Trial Counsel in the SEC’s Division of Enforcement. Capital Ideas is a series created by Morgan and Dara Albright.
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