Blockchains are the latest stage in the democratization of finance and broadening participation in capital markets. Securitization is usually only available to large corporations due to its high costs. Tokenization and automated, on-chain auditing can offer the benefits of securitization to the small- and medium-sized businesses that generate two-thirds of global GDP – but smart, programmable privacy is needed to do it.
As cultural pioneer Stewart Brand remarked in 1984 at the first Hackers’ Conference, “Information wants to be free. Information also wants to be expensive.” Money, which is effectively just a form of information, is highly mobile. And, like other forms of information, it has a way of figuring out how to flow where it’s most valuable.
In his 2025 Annual Chairman’s Letter to Investors, Larry Fink writes that the history of capital markets is one of ever-increasing access to funding and opportunities. From the world’s first stock exchange, which opened in Amsterdam in 1602, and the coffee shop that housed the earliest iteration of the London Stock Exchange, through to modern-day investment platforms and mobile apps, participation has steadily grown. Markets have always been a democratizing force for investment, opening up entry to a broadening cross-section of society.
Blockchain has many use cases, but as a censorship-resistant, borderless, programmable value transfer mechanism, it’s hardly surprising that it should form the foundations of the latest stage in the evolution of our capital markets.
Blockchain Flattens The Barriers To Capital Access
We saw in practice how blockchain could facilitate access to capital in the “ICO Season” of 2017 and 2018, during which many billions of dollars were crowdfunded for crypto projects.
ICOs were controversial from a regulatory point of view, since they were viewed by the authorities as unlicensed securities, but the idea was simple. Just as conventional companies sell shares representing a portion of future revenues at IPO, so crypto-native projects would sell the promise of future platform revenues. The “shares” often took the form of a platform token, used for payments within the service (e.g. Brave/BAT, Filecoin/FIL), or a governance token (MakerDAO/MKR), used to allocate capital and vote on implementation of new features – or a token that combined both of these roles (Polkadot/DOT).
Today, the ICO scene is very different, following regulatory clamp-downs in the aftermath of the excesses of 2017-2018. The era saw many scams and overblown promises come to nothing, as well as a handful of legitimate projects – some of which are now well-established as major DeFi services (such as Aave, MakerDAO/Sky Protocol, and Bancor).
Versions of ICOs are still used today to raise funds for businesses. Participants are generally subject to identity verification, unlike the completely open, permissionless ICOs of previous times, and sometimes restricted to qualified investors. In addition to strategic seed funding from VCs, these crowdsales are one of the main ways that crypto projects raise money. As Web3 technologies and crypto adoption become more mainstream, we can expect more “traditional” businesses to access capital this way, too.
One of the reasons why it is difficult for small businesses to raise capital from the wider market is that the mechanisms for securitization are expensive. The ICO boom is evidence that blockchain can help with this, but one key difference between IPOs and ICOs is that corporations are subject to a process of auditing that provides clarity about their profitability. For established but small companies seeking to raise money for expansion, an audit can be prohibitively expensive.
This is another area in which blockchain has an important role to play. Moving operations on-chain provides instant transparency over the company’s finances, making it straightforward to demonstrate profitability – though of course, it’s not that simple.
On-Chain Securitization Depends On Privacy
No company can put private customer data or sensitive business information on a public blockchain. The former is ruled out by data protection legislation, as well as by common sense (no customer will use a service that “doxxes” them and their spending habits), and the latter by commercial reality, since it would compromise their competitive advantage. Other companies could see exactly what they were doing, who their customers and employees were, salaries and purchasing habits, and more – making it easy to replicate their strategy and target the same people.
There needs to be a balance between transparency and privacy. Soda Labs’ garbled circuits-based MPC solution provides exactly this.
Garbled circuits are a highly flexible and powerful technology that allow data to be processed in its encrypted state, preserving end-to-end encryption.
In the case of a business’s financial records, information could be encrypted and stored on-chain. A garbled circuit could then be used to analyze this data and output a result that does not leak any wider information about customers or the company.
For example, circuits could be designed that would:
- Output total or aggregated revenues, expenditure, and profitability
- Confirm that cash reserves were above a certain level
- Perform analysis of financial data
This would both preserve commercial confidence, and provide investors with the information they need before participating in a capital raise.
A Lifeline For Small Businesses
As Larry Fink wrote in his Letter, “Decentralized finance is an extraordinary innovation. It makes markets faster, cheaper, and more transparent.”
Tokenization – the process of turning real-world assets into tradable digital tokens – is the next step in democratizing market participation. We have already seen this in ICOs and open blockchain protocols that allow anyone to buy and use a platform or governance token. But there is a much greater opportunity.
Anything can be tokenized – stocks, bonds, funds, royalty streams, invoices pending, and more. Tokenized assets offer significant efficiencies over TradFi systems: markets that are open 24/7, near-instant settlement, fractional ownership, the ability to redeploy money that would otherwise be locked due to settlement delays, and access to global capital.
This process has already started, with popular stocks and bonds (especially US treasuries) being tokenized and traded on DeFi platforms, including Ondo and Kraken. Real-world assets are a $25 billion sector, and the fastest-growing segment of the blockchain economy.
What is less widely discussed is on-chain automation of the entire securitization process, including auditing, as well as tokenization.
Large companies have less reason to do this, as they have access to money via traditional routes. The real winners here will be the global “long tail” of small companies that make up 50-70% of global GDP. To date, these SMEs have been excluded from capital markets and generally have to rely on expensive bank loans (for which they are often ineligible).
On-chain securitization, with built-in guarantees of both automated auditing and privacy, is set to change that.
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