What Are Secondary Markets in Tokenization and Why Do They Matter?

A secondary market is where investors buy and sell tokenized securities after the initial issuance. In traditional finance, secondary markets are the stock exchanges, bond markets, and over-the-counter platforms where assets change hands between investors rather than flowing directly from issuer to buyer. In tokenized financing, secondary markets serve the same function - but the infrastructure, regulatory framework, and current state of development look very different.

Secondary markets matter because without them, tokenized securities are effectively locked assets. An investor who acquires a tokenized bond, a fractional real estate position, or a subordinated loan token during a primary offering has no standardised way to exit that position before maturity unless a functioning secondary market exists. The ability to trade - or at least transfer - a token after issuance is what separates a genuinely liquid digital security from a digitised version of the same illiquid instrument it was meant to replace.

The distinction is important. Tokenization is often described as a technology that "unlocks liquidity" in private markets. That framing is partially accurate but also misleading. Tokenization creates the technical preconditions for liquidity - fractional ownership, programmable transfer logic, and blockchain-based record-keeping. But liquidity itself requires active buyers and sellers, regulated trading venues, and sufficient market depth. As of 2026, that infrastructure is being built across Europe but is not yet mature.

How Secondary Markets Differ from Primary Issuance

In a primary market, the issuer sells a newly created security directly to investors. This is the initial offering - whether structured as a security token offering (STO), a crowdfunding campaign under the European Crowdfunding Service Provider Regulation (ECSP), or a Vermögensanlage issued via a white-label platform. The capital flows from investors to the issuer, and the investors receive tokens representing their claim.

A secondary market begins after the primary issuance is complete. Here, the original investor sells their token to another investor. The issuer is no longer a direct party to the transaction. The capital flows between investors, and the token - along with all the rights and obligations it represents - transfers from one wallet to another.

This distinction has regulatory consequences. Primary issuance is governed by prospectus regulations (the EU Prospectus Regulation, VermAnlG in Germany, or the ECSP framework for crowdfunding). Secondary trading, by contrast, falls under trading venue regulation - primarily MiFID II in the EU, which governs how and where financial instruments can be traded after issuance. The fact that a security was issued on a blockchain does not exempt it from these requirements.

For issuers structuring offerings through platforms serving asset managers or investment clubs, the question of secondary market access increasingly shapes how deals are designed from the outset.

The Liquidity Problem in Private Markets

The promise of secondary markets in tokenization is best understood against the backdrop of traditional private markets, where liquidity has historically been scarce or nonexistent.

Consider a typical private market instrument: a subordinated loan (Nachrangdarlehen) financing a real estate development, a participation right (Genussrecht) in a renewable energy project, or an equity stake in an unlisted company. In their traditional form, these instruments are bilateral contracts between the issuer and each individual investor. There is no exchange listing, no order book, and no standardised mechanism for transferring the position to a third party. The investor is typically locked in for the full term - which can range from two to ten years or more.

This illiquidity is not merely inconvenient. It affects pricing, risk allocation, and the overall attractiveness of private market instruments. Investors demand a liquidity premium - higher returns - to compensate for the inability to exit. Issuers bear higher capital costs as a result. And the asset class as a whole remains inaccessible to many institutional and retail investors who cannot accept long lock-up periods.

Tokenization addresses part of this problem by making the instrument technically transferable. When a subordinated loan is represented as a token on a blockchain, the ownership record can be updated in real time, transfer restrictions can be enforced programmatically through smart contracts, and the token can - in principle - be offered for sale to any eligible buyer connected to the same network. This is a meaningful infrastructure upgrade over paper-based or registry-based systems. Industries such as real estate, private equity, and ESG-linked projects stand to benefit most from this shift.

The gap between technical transferability and actual liquidity, however, remains wide. A token that can be transferred is not the same as a token that will find a buyer at a fair price on any given day. That requires market infrastructure - and that infrastructure is still emerging.

EU Regulatory Infrastructure for Tokenized Secondary Trading

The EU has developed a layered regulatory framework that governs how tokenized securities can be traded on secondary markets. Understanding these layers is essential for anyone building or participating in tokenized capital markets in Europe.

MiFID II remains the anchor regulation. Under MiFID II, tokenized securities that qualify as financial instruments - including tokenized bonds, equity tokens, and certain debt instruments - are subject to the same trading rules as their traditional counterparts. The 2022 amendment to MiFID II explicitly confirmed that financial instruments issued by means of distributed ledger technology fall within its scope. This means that operating a venue where tokenized securities are matched for trading requires the same licences as operating a traditional trading venue.

MiFID II defines three types of multilateral trading venues relevant to tokenized secondary markets: regulated markets (RMs), multilateral trading facilities (MTFs), and organised trading facilities (OTFs). For most tokenized securities today, MTFs are the most relevant category - they provide a regulated environment for matching buy and sell orders without requiring the full infrastructure of a national stock exchange.

The DLT Pilot Regime (Regulation (EU) 2022/858), effective since March 2023, introduced a sandbox framework specifically designed for tokenized securities. It allows authorised market participants - investment firms, market operators, and central securities depositories (CSDs) - to operate DLT-based market infrastructures with targeted exemptions from certain MiFID II and CSDR (Central Securities Depositories Regulation) provisions. The regime creates three new entity types: DLT Multilateral Trading Systems (DLT MTFs), DLT Settlement Systems (DLT SSs), and DLT Trading and Settlement Systems (DLT TSSs) that combine both functions.

The DLT Pilot Regime is explicitly designed to build evidence for a permanent regulatory framework. It imposes volume thresholds - the aggregate market value of DLT financial instruments admitted to trading or recorded on a DLT market infrastructure must not exceed €9 billion - and requires regular reporting to ESMA on operational experience. The regime is temporary and subject to review, but it represents the EU's most direct effort to enable regulated secondary trading of tokenized securities.

MiCA (Markets in Crypto-Assets Regulation) is often mentioned alongside MiFID II but serves a different purpose. MiCA governs crypto-assets that do not qualify as financial instruments - stablecoins, utility tokens, and other digital assets. Tokenized securities that meet the definition of a financial instrument under MiFID II are explicitly excluded from MiCA's scope. The token is merely the technical wrapper; the regulatory treatment follows the substance of the underlying instrument, not its format.

The ECSP Regulation (Regulation (EU) 2020/1503) governs cross-border crowdfunding but does not create a secondary market framework. Instruments issued under ECSP - including loans and transferable securities - may become eligible for secondary trading, but this depends on the instrument's classification and the availability of a licensed trading venue. Some ECSP platforms are exploring bulletin board functionality for secondary transfers, though this remains limited.

How Tokenized Secondary Market Trading Works in Practice

In an operational tokenized secondary market, the trading process combines blockchain-based settlement with traditional compliance mechanisms.

A seller lists their token for sale on a licensed trading venue - typically a DLT MTF or a platform operating under a MiFID II investment firm licence. The venue matches the sell order with a buy order from another eligible investor. Before the trade executes, the smart contract embedded in the token verifies that the buyer meets the required eligibility criteria: KYC/AML verification, investor classification (retail, professional, or eligible counterparty under MiFID II), jurisdictional restrictions, and any holding period requirements imposed by the original issuance terms.

If all conditions are met, the trade settles on-chain. The token transfers from the seller's wallet to the buyer's wallet, and the payment settles - either in fiat currency through a traditional payment rail, in a stablecoin, or in tokenised cash if the venue supports it. Settlement can occur in near real-time (T+0), compared to the T+2 standard in traditional European securities markets. This faster settlement reduces counterparty risk and eliminates the need for complex clearing processes.

The compliance layer is critical. Unlike crypto-asset trading, where tokens move freely between wallets, tokenized securities carry embedded transfer restrictions. The ERC-3643 standard (also known as T-REX), widely used in European digital securities, enforces identity-based compliance at the protocol level. Only wallets that have been verified and whitelisted through an on-chain identity system can receive the token. This means that compliance follows the token itself, not the platform - a structural advantage over legacy systems where compliance is enforced venue-by-venue.

For platforms like ONINO that support the full lifecycle of digital securities - from issuance through investor management to ongoing reporting - the secondary market layer represents the next phase of infrastructure development. The ability to issue a security that is "secondary-market-ready" from day one requires thoughtful instrument design, embedded compliance logic, and interoperability with licensed trading venues.

What Is Still Missing

Despite the regulatory framework and technological foundations now in place, several structural gaps prevent tokenized secondary markets from reaching institutional scale.

Liquidity depth remains thin. Most tokenized securities trade on a small number of venues with limited order books. Without sufficient buyers and sellers, price discovery is unreliable, bid-ask spreads are wide, and the practical ability to exit a position at a fair price remains constrained. This is a chicken-and-egg problem: institutional investors hesitate to allocate to tokenized instruments because secondary liquidity is thin, and secondary liquidity remains thin because institutional participation is limited.

Interoperability between venues is lacking. Tokenized securities issued on one blockchain or platform are not automatically tradeable on another. A token issued on Ethereum may not be visible or transferable on a Polygon-based venue, and vice versa. Cross-platform standards - including the ERC-3643 identity framework - are improving, but full interoperability across chains, venues, and jurisdictions is not yet achieved.

Custody infrastructure is still maturing. Institutional investors require regulated custodians who can hold digital securities with the same legal protections as traditional assets. While several EU-regulated custodians now offer digital asset custody, the service landscape is fragmented and the legal frameworks governing custody of DLT-issued securities vary by jurisdiction.

Price discovery mechanisms are underdeveloped. Traditional secondary markets rely on continuous order matching, market makers, and reference pricing to establish fair value. Most tokenized secondary markets lack dedicated market makers, and NAV-based pricing (common in fund structures) does not translate directly to a freely traded token. Establishing transparent, reliable pricing for tokenized private market instruments remains an open challenge.

The DLT Pilot Regime is still in its early phase. While the framework is live, the number of operational DLT market infrastructures remains small. ESMA's review of the regime - expected to inform whether permanent legislation follows - will be critical in determining whether the current sandbox evolves into a durable regulatory foundation for tokenized trading.

None of these gaps are permanent. They reflect the natural state of a market infrastructure that is being built in parallel with its regulatory framework. The trajectory is clear: the EU is actively creating the conditions for tokenized secondary markets to function. The question is not whether secondary markets for tokenized securities will exist, but how quickly they will reach the depth and reliability that institutional participants require.

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FAQ

What is a secondary market in tokenization? A secondary market is where investors trade tokenized securities after the initial issuance. Instead of buying from the issuer (primary market), investors buy from and sell to each other. The token - and all the rights it represents - transfers between wallets, with compliance enforced by smart contracts embedded in the token itself.

Can tokenized securities be traded freely? Not freely in the sense of unregulated crypto trading. Tokenized securities that qualify as financial instruments under MiFID II are subject to the same trading rules as traditional securities. They can only be traded on licensed venues (such as MTFs), and the token's smart contract enforces eligibility checks - including KYC/AML, investor classification, and jurisdictional restrictions — before any transfer can execute.

What is the DLT Pilot Regime? The DLT Pilot Regime (Regulation (EU) 2022/858) is an EU sandbox framework that allows authorised market participants to operate DLT-based trading and settlement systems with targeted exemptions from MiFID II and CSDR. It is designed to build real-world evidence for how tokenized securities can be traded on secondary markets under regulated conditions. The regime is temporary and subject to ESMA review.

Why are secondary markets for tokenized securities still illiquid? Liquidity requires active buyers and sellers, regulated venues, market makers, and sufficient market depth. While the technical infrastructure for tokenized trading exists, participation remains limited because institutional investors are cautious, interoperability between platforms is incomplete, and the regulatory sandbox is still in its early phase. Liquidity is expected to develop as the DLT Pilot Regime matures and more venues become operational.

Summary

• A secondary market for tokenized securities is where investors trade digital securities after the initial issuance, with compliance enforced by smart contracts embedded in the token.

• The EU regulatory framework for tokenized secondary trading is built on MiFID II (which governs trading venues), the DLT Pilot Regime (which provides a sandbox for DLT-based market infrastructures), and CSDR (which governs settlement and custody).

• Tokenization creates the technical preconditions for liquidity - fractional ownership, programmable transfers, near real-time settlement - but actual liquidity depends on market depth, institutional participation, and venue interoperability.

• The current state of tokenized secondary markets is characterised by thin liquidity, limited interoperability between platforms, and an early-phase regulatory sandbox that has not yet produced permanent legislation.

• The trajectory is toward functional, regulated secondary markets for tokenized securities in the EU, but reaching institutional scale will require continued infrastructure development, broader participation, and regulatory maturation.