Chainfeeds Summary:
The core issue is actually quite simple: pre-IPO equity has never had a truly deep, reliable, and credible spot market with a reliable price discovery mechanism.
Article source:
https://x.com/0xArnav/status/2001298984711958831
Article Author:
Arnva
Opinion:
Arnav: The pre-IPO market was never designed for retail investors. Entering private equity typically means a minimum investment of over $100,000, secondary market premiums, a lock-up period of up to a year, and layers of fees. The problem is that this exclusivity is severely out of sync with the changes in capital market structure over the past two decades: the median time to market has lengthened from about 5 years in the late 1990s to 14 years today; over 80% of the market capitalization of companies that went public between 2014 and 2019 was created after the IPO, while in recent years, over half of the IPOs have already achieved their final market capitalization during the private phase. Value creation has clearly shifted forward, but price discovery and liquidity infrastructure remain outdated. Many IPOs in 2025 are more like risk releases and liquidity outlets than the starting point for value discovery, with current share prices often down about 50% from their opening price. Despite the reopening of the IPO window this year and the crypto industry's renewed attempts to democratize the private market through tokenization and perpetual contracts, the reality is that these attempts largely merely put a tradable shell on a structurally dysfunctional market: data is scarce, liquidity is weak, and the structure is highly fragmented. The core problem is not complex—pre-IPO shares have never had a truly deep, sustainable, and credible spot market for pricing. Until then, all derivatives or tokenization designs are merely superficial. The current pre-IPO market can be broadly divided into institutional and retail-oriented categories, with institutional platforms such as Nasdaq Private Market and Forge accounting for over 90% of the market share. The core model of the institutional market is brokerage matching: the platform does not provide a real-time order book; instead, brokers privately match large equity transactions, with transaction cycles lasting 6–8 weeks, highly opaque pricing, fees as high as 2–5%, and more than half of the transactions being rejected by the company. The other category is company-approved liquidity projects, led by the issuer and held periodically, but essentially still not a continuous market. These frictions have spurred alternatives for retail investors: platform-operated inventory resale models and models that aggregate retail funds through SPVs. While these lower the barrier to entry, they introduce new problems—platforms must bear inventory risk or transfer it through structured tools, pricing involves high embedded premiums, investors don't actually hold shares, and there's virtually no secondary liquidity. The end result is a binary dilemma: either enter an institutional channel closed to retail investors or enter a high-fee, weakly protected, and illiquid quasi-private retail market. This isn't a technical issue, but rather a result of institutional, compliance, and market structure factors. Many hope to circumvent these problems with perpetual contracts or tokenization, but the reality is quite the opposite. The fatal problem with pre-IPO perpetual contracts lies in the pricing source: the spot market itself is slow, opaque, and primarily broker-driven, lacking real-time prices for price feeds. Relying on 409A or internal valuations only amplifies the bias, as these valuations are often deliberately suppressed to optimize employee tax burdens and are severely decoupled from true market prices. In an environment of high information asymmetry, the pre-IPO market naturally attracts "informed traders," which represents an unhedged, toxic flow for market makers, ultimately leading only to widening spreads and liquidity depletion. As for tokenization, whether through institutional or retail channels, it cannot circumvent core constraints such as share transfer approvals, lock-up periods, ownership definition, and liquidity aggregation. In fact, the SPV structure may introduce more issues of inconsistent rights and opaque risks. A true breakthrough can only begin with building a low-cost, short-lock-up, real-time tradable spot market. Only when the spot market has sufficient depth can derivatives and on-chain tokenization become amplifiers, rather than tools to mask structural flaws. Unlocking liquidity in the private placement market will remain one of the most important and challenging innovations in the future capital market. [Original text in English]
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