From Public Stock Market to Tokenization: The Evolution of the U.S. Capital Market

The history of the public stock market in the United States dates back to the 1920s. At that time, anyone could raise funds for projects by selling stocks to the public, a practice often accompanied by false promises. By the late 1920s, stock market speculation reached its peak, and the subsequent crash triggered the Great Depression. To restore confidence in the market, Congress enacted a series of regulations, the most important of which were the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws required companies that publicly offered stocks to disclose detailed business information, publish audited financial statements, and promptly disclose significant events.

However, these regulations only apply to listed companies, while private enterprises are not bound by them. Over time, the importance of the private placement market has become increasingly prominent. Compared to the 1920s, when many companies financed themselves by issuing stocks to retail investors, today many enterprises prefer to obtain funding directly from large investment institutions.

The private market has become the new "public market". In the past, the main advantage of going public was the ability to raise large amounts of capital, but now the private market has a pool of trillions of dollars, making an IPO no longer a necessary option. Many star tech companies can secure billions of dollars in funding with valuations of tens of billions without going public.

For these companies, remaining private is more convenient. They can obtain the necessary funding while avoiding the cumbersome procedures associated with going public, such as disclosing financial reports and updating business progress. However, this trend is not beneficial for ordinary investors. Retail investors find it difficult to directly invest in these popular private companies and can only purchase fragmented equity at high prices through gray channels.

In recent years, a view has become increasingly popular: modern economic growth is primarily driven by private enterprises, and most of the most promising companies remain private, leaving ordinary investors unable to participate; this situation urgently needs to change. However, achieving this goal is not easy. Many large private enterprises are reluctant to go public precisely because of the various restrictions and costs associated with the public market.

Nevertheless, the industry is still exploring various possible solutions. One approach is to simplify the listing process and reduce information disclosure requirements; another is to increase regulation of private companies, mandating them to disclose more information. There are also more radical proposals, such as completely abolishing the existing rules for listed companies, allowing any company to freely offer shares to the public without mandatory disclosure.

The cryptocurrency industry provides a new approach to this problem: raising funds by issuing "Tokens" (a type of economic rights certificate similar to stocks) while circumventing the constraints of securities laws. Although this practice remains controversial at the legal level, it has seen a resurgence in recent years.

Tokenization of stocks is viewed as a potential solution. It may not only enable new features such as self-custody, high-leverage loans, and 24-hour trading, but more importantly, it offers the possibility for private company stocks to be sold to the public while bypassing U.S. disclosure rules.

Some fintech companies have started to experiment with this model. They have launched tokenization stock trading services and even offer private company stock tokens as promotional tools. Supporters believe that this approach helps address the issue of unequal investment opportunities, allowing ordinary investors to participate in investments in high-quality private companies.

However, this practice is essentially challenging the existing securities regulatory system. It attempts to sell equity in private companies to the public without complying with information disclosure rules. Although this practice has not yet been fully accepted in the United States, many financial industry leaders are actively advocating for it, and the regulatory environment seems to be relatively open.

This trend has sparked thoughts on the future direction of the Capital Market. Some believe that the existing stock market information disclosure and trading rules should be abolished through tokenization, making the stock market more like the cryptocurrency market. This view sharply contrasts with the traditional approach of strengthening regulation and increasing transparency.

Regardless, the discussion about the future of the Capital Market continues, and its outcome will profoundly affect investors, businesses, and the entire financial ecosystem.