Select Language Citi’s Tokenized Shares Test Whether Transparency Remains the Price of Liquidity

Citigroup announced a new platform for tokenized shares of private companies last week, describing it as a blockchain innovation.

It may prove more significant as a challenge to one of finance’s oldest assumptions.

For more than a century, companies accepted transparency because they needed liquidity. If founders, employees and early investors sought a reliable way to convert ownership into cash, they accepted disclosure requirements, regulatory oversight and scrutiny that came with public ownership.

Public markets were built on a simple reality: liquidity and transparency traveled together. That relationship created investor confidence and became the foundation of modern securities law.

The emergence of tokenized trading raises a fundamental question: If a private company’s shares can increasingly trade like public securities, at what point should that issuer be required to provide public-company levels of disclosure?

That question matters because the economics of going public changed.

Much of this discussion surrounding private markets focuses on the explosion of available capital. Venture-capital firms, private-equity funds, sovereign wealth funds, pension plans and family offices created enormous pools of financing. Companies that once depended on public markets to fund growth now raise billions of dollars while remaining private.

Capital stopped being scarce years ago. Liquidity did not.

The traditional advantage of public equity markets was never simply raising capital. Private markets can do that. What public markets uniquely provided was liquidity at scale—bringing together buyers and sellers, establishing transparent prices… and connecting companies to a broad base of individual and institutional investors.

That combination made public markets one of the most powerful wealth-creation engines in modern finance…allowing employees, retirement savers and individual investors to participate in corporate growth alongside institutions.

Those incentives shaped corporate behavior for generations. Executives and directors accepted quarterly earnings pressure, extensive reporting requirements and public scrutiny because benefits outweighed the costs.

But that bargain rested on more than access to capital and liquidity. It was reinforced by decades of corporate law—particularly in Delaware and, increasingly, Texas—that provided officers and directors with meaningful governance protections.

For many boards, those protections are an essential quid pro quo for assuming the risks and responsibilities of public-company service.

By making private company interests easier to trade, Citi is helping build a world in which liquidity may increasingly exist outside traditional public exchanges.

Whether Citi’s platform succeeds is almost beside the point. Across Wall Street, firms are pursuing the same goal.

If those efforts succeed, they could reshape the longstanding tradeoff between the liquidity of public markets and the flexibility of private ownership.

For decades, stock exchanges enjoyed something close to a monopoly on liquidity. Financial institutions increasingly believe they no longer do.

The implications extend far beyond blockchain technology. The greatest threat to public markets is probably not that companies stop going public. It is that they go public later—after much of their growth has already occurred.

If that happens, public markets would not disappear. They would increasingly become places where early investors, employees and founders cash out rather than where the public first buys.

The real question is not who gets liquidity. It is who gets growth.

By the time some companies reach public markets, much of the value created during their fastest-growing years may already have been claimed.

Private markets play an essential role in financing innovation. The question is whether improved liquidity allows a larger share of corporate value creation to occur before public investors ever arrive.

Broad participation has historically depended on transparency. Tokenization is testing whether liquidity can be delivered without the disclosure requirements that traditionally accompanied it.

As private markets become more tradable, the line between public and private markets blurs.

For generations, markets resolved that tension by linking liquidity to disclosure. Regulators will eventually have to decide whether increasingly liquid private-company securities require public-company disclosure.

Citi is not creating this trend. It is responding to it. Private secondary markets already exist through firms such as Forge, Nasdaq Private Market and Carta.

What is changing is the scale. Across Wall Street, banks and financial firms are investing billions of dollars in technologies designed to make private markets more liquid and accessible.

Securities law traditionally follows economic reality, not technological form. If tokenized private-company shares begin trading with the liquidity, accessibility and price discovery associated with public markets, policymakers may conclude investors deserve comparable disclosure protections.

Citigroup is testing whether transparency remains the price of liquidity.

In Other People’s Money and How the Bankers Use It (1914), Louis D. Brandeis wrote that “sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

The paramount question is not whether blockchain can create liquidity for private-company shares.

It is whether regulators will conclude that securities trading like public stocks should be regulated like public stocks.