Solving America's Liquidity Problem: Secondary Markets for Tokenized Securities

You can tokenize anything. A $200 million office building in midtown Manhattan, a pre-IPO software company valued at $2 billion, a portfolio of senior secured loans assembled by a private credit manager — all of these can be represented as ERC-20 tokens on Ethereum, fractionalized into accessible minimums, and distributed to thousands of accredited investors via Regulation D. The tokenization mechanics are solved.

Turning those tokens back into cash is the hard part.

The foundational promise of tokenized securities is not that they can be issued more cheaply or managed more efficiently — though both are true. The foundational promise is liquidity: that assets which have historically required months of negotiation and legal process to transfer can instead be traded in a matter of seconds through regulated electronic markets operating around the clock. That promise has driven billions in venture capital investment into tokenization infrastructure, attracted the world’s largest asset managers to the space, and generated headlines projecting $16 trillion in tokenized assets by 2030.

The reality, as of early 2026, is that the secondary market for tokenized securities in the United States is thin, expensive, fragmented, and largely inaccessible to the institutional investors who represent the majority of the addressable market. The infrastructure exists. The regulatory framework exists. The liquidity does not yet exist — at least not at the scale and quality that institutional allocators require before they will commit large capital to tokenized positions.

Understanding why the gap between promise and performance persists — and what specific developments will close it — is the analytical task this article undertakes.

What a Functional Secondary Market Requires

Before assessing whether current secondary markets for tokenized securities are adequate, it is necessary to specify what adequacy looks like. A functional secondary market for a regulated security requires five elements operating simultaneously. The absence of any one element degrades the market’s utility; the absence of multiple elements produces the thin, illiquid condition that characterizes the current tokenized securities secondary market.

Element 1: Sufficient supply of tradeable instruments. A secondary market requires enough tokenized securities in circulation that buyers and sellers can match at reasonable spreads without individual large transactions moving the price significantly. As of early 2026, the number of distinct tokenized securities available for secondary trading on US ATS platforms is approximately 100-150 — a fraction of the thousands of securities listed on traditional exchanges. Thin instrument supply means thin liquidity.

Element 2: Legal compliance across the full transaction stack. For a tokenized security to trade legitimately in the US, a specific compliance stack must be in place: (1) The issuer must have used an appropriate exemption (Reg D, Reg A+, or full registration); (2) the token must have been issued through an SEC-registered transfer agent; (3) the trade must execute on a SEC-registered ATS or through a registered broker-dealer; (4) both the buyer and seller must pass KYC/AML verification on the trading platform; (5) for Reg D securities, the buyer must be verified accredited; (6) for Reg D securities, the transfer must respect the 12-month holding period restriction. Each of these requirements adds friction. For traditional securities trading, equivalent compliance occurs in milliseconds through automated systems built over decades. For tokenized securities, the same compliance requirements are being implemented on new infrastructure that is still being debugged and standardized.

Element 3: Price discovery mechanism. Buyers and sellers need a basis on which to agree on price. For listed securities, continuous trading with public price transparency provides real-time price discovery. For tokenized securities trading on ATS platforms, price discovery is hampered by thin order books, infrequent trading, and the absence of market makers willing to provide continuous liquidity. A tokenized real estate interest in a specific property trades so infrequently — perhaps a few times per week — that the most recent trade price may be days old by the time a new investor tries to buy or sell. This stale-price problem is a genuine barrier to institutional adoption; investment committees cannot value positions using prices that are days old.

Element 4: Market makers or other liquidity providers. In liquid markets, market makers (broker-dealers who quote both bids and offers continuously) ensure that investors can execute at any time at a reasonable spread. Market making requires capital commitment — the market maker must hold inventory of the securities it quotes — and involves managing inventory risk, financing cost, and regulatory capital requirements. Market making in tokenized securities is currently uneconomical for most potential providers because the instrument pool is too small (low volume means low fee income), the regulatory treatment is uncertain (can market makers hold tokenized securities in traditional capital calculations?), and the technology infrastructure is not yet standardized enough to support automated market-making algorithms.

Element 5: Custody integration with institutional workflows. Institutional investors manage securities through custody accounts at banks and prime brokers integrated with portfolio management systems, order management systems, and risk systems. A tokenized security that must be held in a dedicated blockchain wallet, separate from the investor’s traditional custody infrastructure, creates operational complexity that compliance and operations teams will resist. Until tokenized securities custody integrates seamlessly with existing prime brokerage and custody workflows, the effective universe of institutional buyers is constrained to those willing to manage parallel operational stacks.

tZERO: The Pioneer That Built the Category

tZERO was conceived in 2014 by Patrick Byrne, then CEO of Overstock.com, as the vehicle through which blockchain technology would disrupt the $35 trillion US equity market. The ambition was enormous. The execution has been more measured — but tZERO has survived long enough to build the longest operational track record of any regulated digital securities ATS in the United States, a distinction that matters considerably when institutional investors are evaluating platform reliability.

tZERO’s regulatory structure is its most important competitive asset: a fully registered SEC broker-dealer, a registered ATS, and FINRA membership — the complete stack required to legally operate as a secondary market for tokenized securities. Building this regulatory stack required years of engagement with the SEC and FINRA, multiple application revisions, and operational compliance buildout that cost far more than the underlying technology. Any competitor that has not completed this regulatory process cannot legally operate as a secondary market for Reg D tokenized securities in the US — creating a significant barrier to entry.

tZERO’s first digital security transaction was its own: in 2019, tZERO completed a $134 million offering of its own preferred equity tokens under Reg D, the first significant security token offering on a regulated US platform. The tZERO preferred equity token subsequently traded on tZERO’s own ATS, providing a live demonstration of the issuance-to-secondary-market workflow that the company was building for external clients.

As of early 2026, tZERO hosts secondary trading for approximately 15 tokenized assets. The asset composition includes tokenized real estate interests (REX, a tokenized real estate project), private equity interests (early-stage technology companies), and the tZERO preferred equity itself. The daily volume of $10-20 million reflects the thin liquidity conditions that characterize the entire ATS sector — meaningful for demonstrating functionality, insufficient for institutional-scale position management.

tZERO’s partnership with Securitize for transfer agent services created an important alignment: Securitize, as the dominant transfer agent for digital securities, sees its issuer clients route their secondary trading to tZERO. As Securitize expands its issuer base — adding KKR, Apollo, Hamilton Lane, and other brand-name alternative asset managers — the pipeline of new instruments available for tZERO secondary trading grows. Whether tZERO or Securitize’s own ATS (Securitize Markets) captures the secondary volume from these institutional issuers is the central competitive question in the US digital securities secondary market.

INX Limited: The Regulated Exchange Model

INX Limited represents a different approach to digital securities trading than tZERO: rather than building a secondary market for third-party securities, INX built a regulated exchange for both digital securities and cryptocurrencies, starting with its own regulated IPO.

In August 2021, INX completed the first SEC-registered initial public offering of a digital security — raising $83 million from retail investors in a Reg A+ offering of INX tokens. This transaction was not merely a capital raise; it was a proof of concept for the entire regulated digital security offering model. The SEC’s review and qualification of the INX Reg A+ offering — which took over 18 months and multiple rounds of comments — established a template for SEC-qualified digital security offerings that subsequent issuers could reference.

INX operates as both an SEC-registered ATS and a FINRA-registered broker-dealer, with the combined regulatory footprint necessary to serve retail investors (Reg A+ securities) as well as accredited investors (Reg D securities). The dual registration is unusual in the digital securities space — most platforms are accredited-investor-only because building the compliance infrastructure for retail investor access adds significant cost and regulatory scrutiny. INX’s decision to accept this complexity reflects a strategic bet that the largest addressable market for digital securities is not the institutional market (which can access private equity, hedge funds, and other alternatives through traditional channels) but the retail market (which currently has no pathway to private market assets).

INX has expanded to list cryptocurrency trading alongside digital securities — a strategic choice that generates trading fee revenue from a more liquid market while the digital securities market matures. The cross-product strategy allows INX to sustain operations during the slow-build period of digital securities adoption while positioning for the eventual convergence of crypto trading and securities trading on regulated platforms.

Securitize Markets: The Vertically Integrated Model

Securitize — the dominant SEC-registered transfer agent for digital securities, with a client roster that includes KKR, Apollo, Hamilton Lane, Ares, BlackRock, and dozens of other institutional asset managers — made the strategically logical decision to extend its transfer agent franchise into secondary market operations. Securitize Markets, the company’s ATS, creates a vertically integrated issuance-to-secondary-trading stack: the same platform that manages investor onboarding, KYC/AML verification, and token issuance for the primary offering also provides the secondary market for ongoing trading.

The competitive advantage of this integration is substantial. For an asset manager using Securitize to tokenize a private equity fund, routing secondary trading through Securitize Markets requires no additional investor onboarding — the KYC/AML verification, accreditation confirmation, and transfer restriction compliance tracking that Securitize performed for the primary offering are automatically carried forward to secondary trading. For the asset manager, this eliminates the coordination cost of working with a separate secondary market provider. For investors, it reduces the friction of accessing secondary liquidity — they do not need a separate brokerage account with tZERO or INX; they can trade through the same Securitize portal they used to participate in the primary offering.

Securitize Markets currently hosts secondary trading for the most prestigious set of tokenized alternative investment funds available anywhere: KKR’s Health Care Strategic Growth Fund II (tokenized for individual investor access), Hamilton Lane’s Senior Credit Opportunities fund, Ares Capital Corporation fund interests, and Franklin Templeton’s FOBXX. These are not emerging manager funds — they are products from blue-chip alternative asset managers that have chosen Securitize as their tokenization infrastructure partner. Secondary trading volume for these institutional-grade products is growing as investor awareness and the number of tokenized positions increases.

The Broadridge Exception: Institutional Repo at Scale

Any analysis of US digital securities secondary markets must acknowledge the outlier: Broadridge’s Distributed Ledger Repo platform, which settled $384 billion in a single day in December 2024. DLR demonstrates that institutional-scale secondary market volume on distributed ledger technology is achievable — but it operates in a fundamentally different market structure than the tokenized securities platforms described above.

DLR succeeds at massive scale because it operates within a highly concentrated, homogeneous market (repo between major broker-dealers) with established counterparty relationships, standardized instrument terms (overnight Treasury repo), and a small number of sophisticated participants who could absorb the operational change of migrating to DLR. The conditions that enable DLR’s success — instrument homogeneity, concentrated counterparty base, existing regulatory treatment — do not characterize the broader tokenized securities market, where assets vary enormously in structure, investor eligibility varies by offering exemption, and the counterparty universe includes thousands of individual accredited investors.

DLR’s success is therefore an existence proof of what institutional tokenized secondary market infrastructure can achieve, not a template that can be directly applied to retail-accessible tokenized securities.

DeFi as Secondary Market: The Regulatory Frontier

A significant and largely overlooked secondary market for tokenized securities is emerging within decentralized finance protocols — raising legal questions that the SEC has not yet definitively answered.

BlackRock’s BUIDL tokens trade on-chain when institutional investors transfer them between Ethereum wallets. Ondo Finance’s OUSG and USDY tokens are actively traded on decentralized exchanges. RealT tokens for tokenized real estate are traded in Uniswap liquidity pools. Each of these transactions constitutes secondary market trading in securities — but none of them occurs through an SEC-registered ATS or broker-dealer.

The regulatory question this raises is direct: does an automated market maker (AMM) smart contract that facilitates trades in registered securities constitute an unregistered ATS or broker-dealer? The SEC’s 2019 guidance on digital asset trading platforms suggested that software that “facilitates buying and selling of digital assets” and “displays orders” may constitute an exchange requiring registration. But DeFi AMMs do not display orders in the conventional sense — they execute trades against a liquidity pool using an algorithmic pricing formula, without the order book structure that the SEC’s guidance contemplated.

The SEC has not issued formal guidance on this specific question as of early 2026. The current regulatory equilibrium — where on-chain secondary trading of registered securities occurs without SEC enforcement action — may reflect the agency’s view that permissioned, restricted tokens (like BUIDL’s transfer-restricted architecture) provide adequate compliance regardless of the trading venue. Or it may reflect enforcement resource limitations and priority decisions that leave this area temporarily unaddressed.

For institutional investors, the DeFi secondary market question is more operational than philosophical: if an institution holds BUIDL tokens and wishes to sell them on Aave rather than through Securitize Markets or tZERO, does doing so create regulatory exposure? Until the SEC provides clear guidance, institutional legal departments will advise caution — limiting DeFi liquidity to crypto-native investors willing to accept regulatory ambiguity and further concentrating secondary market activity on registered ATS platforms.

The Path to Institutional-Grade Liquidity: 2027-2029

The timeline to institutional-grade secondary market liquidity for tokenized securities — defined as bid-ask spreads below 50 basis points, institutional-scale order books, and continuous price discovery — is 2027-2029, based on the infrastructure development trajectory visible in early 2026.

Three developments will drive that transition:

Market maker entry. Traditional market makers — Citadel Securities, Virtu Financial, Jane Street — have the capital, technology, and regulatory infrastructure to provide continuous liquidity in tokenized securities if the volume justifies the investment. At current ATS volumes ($10-20 million daily), the economics do not support professional market-making. At $1 billion daily — a scale that requires either more instruments or more investors per instrument — the economics shift. Market makers are watching the trajectory and will enter when the threshold is crossed.

Instrument standardization. A secondary market cannot achieve depth when each traded instrument has unique legal terms, transfer restrictions, and compliance requirements. The development of standardized tokenized security structures — comparable to how syndicated loan documentation was standardized in the 1990s by the Loan Syndications and Trading Association — will dramatically reduce the per-instrument compliance cost of market-making and attract more participants. The International Swaps and Derivatives Association (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) are both engaged in digital securities standardization work; their output will be consequential.

Custody integration. When tokenized securities custody integrates natively with Prime services at Goldman Sachs, Morgan Stanley, and JPMorgan — enabling institutional investors to hold tokenized and traditional securities in unified portfolios with unified risk management — the operational barrier to institutional market participation falls. This integration is underway but not yet complete as of early 2026.

The Progress vs. Promise Scorecard

Assessed honestly against its original promise, the secondary market for US tokenized securities in 2026 scores as follows:

Promise: 24/7, global, liquid markets for traditionally illiquid assets. Current progress: limited trading hours on some platforms, accredited-investor-only access, thin order books, wide spreads.

Promise: T+0 settlement eliminating counterparty risk. Current progress: on-chain settlement is T+0, but access to on-chain settlement requires custody infrastructure that many institutions do not yet have.

Promise: democratized access to institutional-quality assets. Current progress: minimum investments are lower than traditional private market access, but accreditation requirements and platform limitations still exclude most Americans.

Promise: price transparency through continuous trading. Current progress: trading is too infrequent on most ATS platforms to provide meaningful continuous price discovery.

The gap between promise and progress is not a reason to dismiss tokenization’s secondary market trajectory — it is a reason to understand precisely which infrastructure investments will close the gap and on what timeline. The ATS platforms are operational. The compliance stack is built. The regulatory framework exists. The missing elements — market maker participation, instrument standardization, custody integration — are all tractable problems with clear solutions and clear economic incentives driving their resolution.

For context on the institutional infrastructure that will feed volume into these secondary markets, see our Wall Street tokenization buildout analysis. For the regulatory framework that governs what secondary markets can trade, see our SEC regulation deep dive. For the role of stablecoins as the cash leg of every secondary market trade, see our stablecoin regulation analysis.

External authority references: SEC — ATS Registration and Regulation and FINRA — Digital Asset Securities.

Donovan Vanderbilt is the founder of The Vanderbilt Portfolio, an independent intelligence network covering institutional finance and digital asset markets. This analysis is for informational purposes only and does not constitute investment advice.