Ondo Finance is expanding beyond tokenized stocks and exchange-traded funds into private markets, launching a new product line called Ondo Private Markets. The first offering gives eligible investors tokenized exposure to an unnamed pre-IPO artificial intelligence company. The product is structured as tokenized notes, with payouts linked to the value realized per common share of the referenced company at a qualifying liquidity event. The notes are designed to provide economic exposure without granting direct ownership of the private company's shares.
The move marks one of the more ambitious attempts to bring private-market assets onchain. Private companies, especially those in artificial intelligence, have become some of the most sought-after but least accessible investments for ordinary investors. Many of the largest AI firms remain private, and their shares are typically available only to venture capital funds, institutional investors, and wealthy accredited individuals. Tokenized notes could create a new pathway for eligible participants to gain exposure, although the structure comes with significant legal, liquidity, and valuation considerations.
According to Ondo, eligible investors will be able to hold the notes in self-custody wallets or trade them on secondary markets around the clock. The first notes are expected to start trading this week. Ondo also plans to roll out products tied to companies in robotics, cybersecurity, biotech, infrastructure, and other sectors. That roadmap suggests the platform intends to build a broad tokenized private-market offering rather than a one-off product.
The launch builds on Ondo's existing infrastructure for real-world asset tokenization. Its platform for tokenized United States stocks and exchange-traded funds, Ondo Stocks, has more than $1 billion in total value locked and offers more than 450 tokenized stocks and ETFs, according to the company. That business provides a foundation of blockchain-based issuance, custody, and trading technology that can be adapted to private-market exposure. By moving into pre-IPO companies, Ondo is testing whether the same tokenization model can work for assets that are traditionally illiquid and restricted.
How the tokenized notes work
The Ondo Private Markets notes are not direct equity. Instead, they are tokenized instruments whose payouts are linked to the value realized per common share of the referenced company at a qualifying liquidity event. A qualifying liquidity event could include an initial public offering, a direct listing, or an acquisition, depending on the terms of the note. The exact structure may vary by offering, and the unnamed AI company is only the first reference asset.
Because the notes provide economic exposure rather than ownership, holders would not receive shareholder rights such as voting, board representation, or direct dividend entitlements. The value of the notes depends on the eventual outcome for the private company and the specific terms of the instrument. If the company goes public at a higher valuation, the notes may pay out based on the realized per-share value. If the company is acquired, the payout may be tied to the acquisition price. If the company fails or its valuation declines, the notes could lose value or become worthless.
Tokenization adds a blockchain-based wrapper to this exposure. The notes can be held in self-custody wallets, which means eligible investors may control the tokens directly rather than relying on a traditional brokerage account. Ondo says the notes can also trade on secondary markets 24 hours a day, seven days a week. That round-the-clock trading feature is a common selling point for tokenized assets, which can settle onchain and potentially reach global markets without the traditional trading-hour constraints of stock exchanges.
However, 24/7 trading does not guarantee deep liquidity. Private-market exposures are often subject to transfer restrictions, eligibility requirements, and legal lockups. Even if the notes trade on secondary markets, the pool of eligible buyers may be limited. That could lead to wide spreads, price volatility, and difficulty exiting positions during periods of stress. Investors would need to understand the difference between the ability to trade and the availability of a liquid market.
Why private markets are attracting tokenization platforms
Private markets have grown dramatically over the past decade. Companies are staying private longer, raising larger rounds from venture capital and private equity investors, and delaying initial public offerings. The result is that much of the value creation in technology, healthcare, and other high-growth sectors now happens before a company lists on a public exchange. Retail investors have historically been shut out of that phase, or have gained exposure only indirectly through funds, special purpose vehicles, or closed-end vehicles that may trade at premiums or discounts to their underlying assets.
Artificial intelligence has intensified this dynamic. The most prominent AI developers are private, and demand for their shares is intense. In April, a major retail brokerage's venture fund invested $75 million in OpenAI common stock to give retail investors exposure through a publicly traded closed-end fund. That structure allows ordinary investors to participate indirectly, but it does not provide direct ownership of OpenAI shares. Reports in June also indicated that a large global bank was preparing a blockchain marketplace for private-company shares. Those developments show that financial institutions are exploring ways to bring private-market access to a wider audience.
Ondo's tokenized notes take a different approach. Instead of packaging private shares into a fund, the company is issuing blockchain-based instruments tied to the economic performance of a private company. That structure could make it easier to transfer exposure, fractionalize ownership, and integrate with onchain financial applications. It could also create new markets for price discovery, although the accuracy of that price discovery would depend on the quality of disclosure and the liquidity of the notes.
The broader real-world asset tokenization sector has been growing rapidly. Tokenized treasuries, money market funds, commodities, and public equities have attracted billions of dollars in cumulative value. Ondo has been one of the more active players, particularly through its tokenized stock and ETF platform. The company has also worked with traditional asset managers on tokenized ETF products that aim to offer 24/7 trading through crypto wallets. Extending that model to private markets is a logical next step, but it also raises the complexity level substantially.
Regulatory and investor eligibility questions
Private-market investments are heavily regulated in most jurisdictions. Securities laws typically restrict who can invest in private companies and how those interests can be marketed, transferred, and resold. Ondo's use of the term eligible investors signals that the product will not be available to everyone. Eligibility may depend on accreditation status, jurisdiction, investment experience, and other criteria. Tokenized notes that reference private companies may still be treated as securities, which means they could be subject to registration requirements, exemptions, transfer restrictions, and ongoing disclosure obligations.
Self-custody adds another layer of complexity. When investors hold tokens in their own wallets, they are responsible for securing private keys and managing the risks of blockchain transactions. If a wallet is compromised or a seed phrase is lost, the tokens may be unrecoverable. Tokenized notes may also rely on smart contracts, custodians, administrators, and legal wrappers that determine how payouts are calculated and distributed. Each of those components introduces operational and counterparty risks.
Secondary-market trading raises additional questions. If the notes trade on unregulated or lightly regulated venues, investors may have less protection than they would on a registered securities exchange. Market manipulation, insider trading, and misleading disclosures could be harder to police. Regulators in the United States and Europe have been increasingly focused on tokenized securities and decentralized trading platforms. Ondo's private-market notes could attract scrutiny if they are perceived as offering private-company exposure to retail investors without adequate safeguards.
The road ahead for tokenized private markets
Ondo's first private-market notes are tied to an unnamed pre-IPO AI company. The company has not disclosed the identity of the reference asset, which may be due to confidentiality agreements, regulatory considerations, or competitive reasons. The anonymity could make it difficult for investors to conduct due diligence. Even if the sector is known, the specific company's financials, governance, capitalization, and exit prospects would be critical to valuing the notes. Without that information, investors would be relying heavily on the issuer's structure and the eventual liquidity event.
The planned expansion into robotics, cybersecurity, biotech, infrastructure, and other sectors suggests that Ondo wants to create a menu of tokenized private-market exposures. Each sector has its own risk profile. Robotics and AI may be capital-intensive and subject to rapid technological change. Cybersecurity companies may benefit from rising digital threats but face intense competition. Biotech companies often depend on clinical trials, regulatory approvals, and long development timelines. Infrastructure investments may offer more predictable cash flows but can be sensitive to interest rates and government policy.
If successful, tokenized private-market notes could broaden access to an asset class that has historically been reserved for institutions and wealthy individuals. They could also create new ways for private companies to manage liquidity, compensate employees, or engage with investors. But success will depend on clear legal structures, robust disclosure, reliable custody, and sufficient secondary-market liquidity. Without those elements, tokenization may simply repackage illiquidity and complexity in a new digital format.
For now, Ondo is positioning itself at the intersection of two powerful trends: the growth of private markets and the migration of financial assets onto blockchain rails. The first notes are expected to begin trading this week, with additional sector-specific offerings planned to follow.
Source:Cointelegraph News