Perspective
What Tokenization Isn’t: 4 Myths That Cost Investors Money
Darren Nakos, CCIM · September 2026
In Part 1 of this series, I covered what tokenization really is — a digital wrapper for an ownership right, not a new kind of investment. This piece is about what it commonly gets mistaken for, because that mistake is where investors actually get hurt.
The four myths I hear most
“It’s tokenized, so it’s automatically more liquid.”
Reality: A token can technically move in seconds, but that doesn’t mean there’s a buyer waiting on the other end. Liquidity comes from an active, functioning secondary market — and most tokenized private offerings still don’t have one. A token sitting in a wallet with no willing buyer is exactly as illiquid as a paper certificate with no willing buyer. The technology can speed up settlement once a trade’s agreed to. It doesn’t manufacture demand.
“It’s tokenized, so it’s regulated and safe.”
Reality: Tokenization is a technology choice, not a regulatory status. A tokenized security is still a security under U.S. law if the underlying interest meets that definition, full stop. It still has to comply with securities law — full registration, or an exemption like Regulation D, which I’ll get into in Part 4. Putting an ownership interest on a blockchain doesn’t exempt an offering from oversight, and it doesn’t add investor protections that weren’t already built into the underlying legal structure.
“It’s tokenized, so I truly own the underlying asset.”
Reality: In most current structures, investors don’t directly own the building, the fund’s assets, or the loan. They own a token representing a contractual or membership interest in the entity that owns the asset — usually an LLC or special purpose vehicle. How strong that position actually is comes down to the legal documents behind the token: the operating agreement, the subscription agreement, the custody arrangement. The blockchain entry records the interest. It doesn’t create rights beyond what those documents already establish.
“Tokenization eliminates counterparty risk.”
Reality: Tokenization can cut down on certain operational headaches — reconciliation errors, slow manual transfers, cap tables nobody can quite make sense of. But it introduces its own categories of risk: platform risk (what happens if the issuing platform goes under), custodian risk (who’s actually holding the keys or the asset), and smart contract risk (bugs or exploits in the code running the token). I’m covering custody specifically in Part 3, since it’s the piece marketing materials gloss over the most.
Tokenization describes the format of the record. On its own, it says nothing about liquidity, legal protection, or regulatory compliance.
The pattern worth watching for
If a pitch leans on the word “tokenized” as a stand-in for explaining the legal structure, the ownership rights, and the regulatory basis of the offering, that’s a reason to ask more questions, not fewer. Tokenization describes the format of the record. On its own, it says nothing about liquidity, legal protection, or regulatory compliance — all of that comes from the structure underneath it.
This article is educational in nature and does not constitute investment, legal, or tax advice.