Ask any institutional investor considering a tokenized position what actually worries them, and the answer usually isn't the token structure or the smart contract audit. It's simpler than that: "If I need to get out of this position, can I?" Liquidity, not technology, is the question that determines whether a tokenization deal actually closes.
That question deserves a more careful answer than the marketing pitch usually gives it. "Tokenization unlocks liquidity" is a claim made about almost every asset class being brought onchain, from private equity interests to real estate to fine art. Some of that claim is true. Some of it is aspirational. Investors who can't tell the difference before they commit capital are the ones who end up disappointed eighteen months later, holding a token with no functioning market to sell it into.
Why "Tokenized" Doesn't Automatically Mean "Liquid"
The confusion starts with a basic conflation: tokenization changes how an asset is represented, not how many people actually want to buy it. A private equity interest tokenized on a blockchain is still a private equity interest subject to the same investor eligibility rules, the same limited buyer pool, and the same fundamental illiquidity that private equity has always had. Turning it into a token doesn't manufacture a market that wasn't there before.
What tokenization does change is the mechanics of a trade once a willing buyer and seller actually find each other. Settlement that used to take weeks of legal paperwork can now happen in a single blockchain transaction, with eligibility and transfer restrictions enforced automatically rather than checked manually by a transfer agent. That's a genuine improvement, but it improves the speed and cost of executing a trade, not the underlying scarcity of buyers.
This distinction matters enormously for how an investor should evaluate a tokenized offering. The right question isn't "is this tokenized?" It's "is there an actual venue, counterparty pool, or mechanism where I could realistically sell this, and how has that mechanism performed for comparable assets?"
The Four Ways a Tokenized Position Actually Changes Hands
In practice, secondary liquidity for tokenized assets today comes from a small number of distinct pathways, and they perform very differently depending on the asset type. Regulated trading venues built specifically for tokenized securities exist and are growing, offering the closest thing to a traditional exchange experience: order books, price discovery, and regulatory oversight. Bilateral, negotiated trades between known institutional counterparties remain the dominant mechanism for larger positions, particularly where a public order book would create unwanted market impact. A newer and still-developing pathway runs through decentralized exchange infrastructure, where a small number of highly liquid instruments mostly tokenized government-backed products have begun trading against onchain liquidity pools. And for smaller, closed groups of eligible investors, direct peer-to-peer transfer offers a simple if illiquid fallback.
Each of these pathways carries a different risk and speed profile, and the mechanism that actually applies to a given asset depends heavily on what's being tokenized. A tokenized Treasury product and a tokenized private credit fund interest are not comparable from a liquidity standpoint just because both happen to be issued as tokens on a blockchain.
Blockmaze has published a detailed breakdown of exactly how these four pathways work in practice, including which regulated venues currently see meaningful volume and which asset types are still mostly illiquid — in their piece on how secondary trading works for tokenized assets. It's a useful reference for separating the liquidity that actually exists today from the liquidity that's still mostly a roadmap item.
The Honest State of the Market
It's worth being direct about where things actually stand rather than repeating the optimistic version of the story. A handful of tokenized products mostly government-backed instruments with large, well-known issuers behind them have real, measurable secondary market activity across both regulated venues and DeFi infrastructure. The vast majority of tokenized private market instruments do not. Private credit positions, real estate tokens, and tokenized fund interests mostly still function the way their untokenized equivalents always have: investors hold to maturity or find a buyer through direct relationships, because there isn't yet a deep enough market of eligible counterparties to support meaningful trading volume.
This isn't a criticism of tokenization as a concept. It's a reflection of where the market actually is in its development, and it should shape how investors size positions and think about their own liquidity needs. An allocation that assumes easy exit within a year because "it's tokenized" is making an assumption the current market often can't support. An allocation sized and planned around the asset's actual, realistic liquidity profile, tokenized or not, is a fundamentally sounder decision.
What Compliance Has to Do With Liquidity
There's a less obvious factor that shapes tokenized asset liquidity as much as market depth does: compliance enforcement. Because eligibility and transfer restrictions are typically encoded directly into the token itself, every potential buyer in a secondary trade has to clear the same eligibility bar the original investors did: accreditation status, jurisdiction, sanctions screening, regardless of which venue or mechanism brings the trade together. That's a feature, not a bug, from a regulatory standpoint. But it also means the buyer pool for a tokenized security is never larger than the pool of eligible, verified investors, no matter how many trading venues exist to connect them.
This is a meaningful departure from how liquidity works in fully public, unrestricted markets, where anyone with capital and an account can become a buyer. For regulated tokenized securities, liquidity is bounded by the eligible universe first and market infrastructure second. Investors evaluating an offering should ask how large and active that eligible universe actually is, not just how many trading venues the token is technically compatible with.
A Practical Checklist Before Committing Capital
Before treating a tokenized offering's liquidity claims at face value, it's worth working through a short set of concrete questions. Has this specific asset type, not tokenization generally, shown actual secondary trading volume on a regulated venue? Is there a defined bilateral or OTC pathway, and does the platform disclose who the realistic counterparties would be? If DeFi integration is mentioned, is it a live, functioning liquidity pool or a stated future intention? And critically, what is the actual size of the eligible investor pool who could legally buy this position from you?
None of these questions require deep blockchain expertise to ask. They're the same due diligence questions a sophisticated investor would apply to any illiquid alternative asset, updated for the fact that the settlement mechanics happen to run on a blockchain. Investors who bring that same rigor to tokenized offerings tend to avoid the most common disappointment in this market: discovering, only when they actually want to sell, that "tokenized" was never the same promise as "liquid."
