Blockchain Unlocks Private Markets: The 'Secondary First' Path to Enhanced IPOs
C Shen
3
8-26Arthur: When you think about the birth of a stock market, the image that usually comes to mind is that big, flashy IPO, right? The bell ringing, the confetti. But what if I told you the entire history of financial markets is built on a completely different, almost opposite, idea?
Mia: Well, it's one of those things that feels counter-intuitive but makes perfect sense once you hear it. The big IPO machine we know today is actually the final product, not the starting point.
Arthur: Exactly. Most people think markets start with companies going public, but history shows us a completely different story. From 17th-century Amsterdam to modern Wall Street, a core pattern emerges: the secondary first model. Before any company could have a successful IPO, there had to be a lively market where investors were already trading shares among themselves.
Mia: Right, and that's the critical part. That pre-existing trading is what establishes two fundamental things: liquidity, meaning you can actually sell your shares, and price discovery, so you know what they're worth. Without those, an IPO is just a shot in the dark.
Arthur: Let's go back to the very beginning, 1602 Amsterdam, with the Dutch East India Company, or the VOC. They did an initial fundraising, but the real innovation happened right after. Investors in Amsterdam started trading VOC shares with each other in coffeehouses and down at the docks.
Mia: That's the perfect example. Those informal trades created a real market. It meant that if you bought into the VOC, you weren't stuck. You knew you could find a buyer, and you had a rough idea of the going price. That confidence is what fuels further investment. It's the engine.
Arthur: And this wasn't a one-off. A century later in London, the same thing happened. Brokers were pinning stock prices up on the walls of places like Jonathan's Coffee House, creating an informal secondary market almost a hundred years before the London Stock Exchange was officially founded.
Mia: It's a recurring theme. Even the famous Buttonwood Agreement on Wall Street in 1792, which was the precursor to the New York Stock Exchange, was primarily about brokers agreeing to trade existing government bonds and bank stocks with each other. The new issues came much, much later.
Arthur: So how did these early markets, without any modern tech or regulation, actually build up effective liquidity and price discovery? It seems chaotic.
Mia: I think the key was that it was all based on people and community. In those coffeehouses, information spread through conversation and trust. A small group of people who knew each other were constantly making bids and offers. It created a feedback loop. While it might seem slow to us, that constant interaction within a trusted circle allowed a fair price to emerge naturally.
Arthur: Interesting. So it was the informal, human-scale secondary trading that laid the groundwork for everything that followed. So why is this secondary liquidity so fundamentally important for a healthy market?
Mia: It boils down to a few key things. First, it solves the investor's exit problem—you're not scared to invest if you know you can get out. Second, it creates price transparency so companies know what they're worth. And finally, all of this activity lowers the cost of capital for companies because investors don't have to demand a huge premium for the risk of being stuck with an illiquid asset.
Arthur: I see. It's basically the foundation that the entire primary market, the IPO market, is built upon. Without it, the whole structure is wobbly.
Mia: Exactly. A secondary market is what gives a primary market life.
Arthur: So let's fast forward to today's pre-IPO market. We see companies staying private for much longer, the number of public companies in the U.S. has basically halved since the 90s. This has created a need for liquidity among employees and early investors, leading to platforms like the Nasdaq Private Market and Forge. But these markets are notoriously fragmented, slow, and expensive. It feels like we're back in the Amsterdam coffeehouse era, but without the charm.
Mia: You've hit the nail on the head. They're solving a real need, but the process is incredibly inefficient. It's a patchwork of closed networks with very little transparency. It raises the question: isn't there a technology that could modernize this, that could bring public-market efficiency to the private world?
Arthur: And that's where blockchain comes in. But how, specifically, does it solve these problems of fragmentation, opacity, and high costs?
Mia: This is where it gets really powerful. Blockchain brings programmability and transparency. With smart contracts, you can embed compliance rules—like who is eligible to buy or sell and any lock-up periods—directly into the asset itself. That automates a ton of manual legal work. Then, by using tokenized assets and stablecoins, you can have near-instant settlement, not the weeks or months it can take now. And finally, every transaction is on a transparent, auditable ledger, which creates real price discovery for everyone, not just a few insiders.
Arthur: So it's about building a trust machine that makes the whole process faster, cheaper, and more open. So, if these efficient, blockchain-powered secondary markets take off, do they just kill the IPO?
Mia: Quite the opposite. A robust secondary market for private shares will actually fuel more and better IPOs. It's not a replacement; it's a runway. More liquidity and better price discovery in the private stage makes a company far more attractive to a wider range of investors when it's time to go public.
Arthur: So having a transparent trading history before the main event makes the IPO itself less of a guessing game.
Mia: Precisely. Think about Coinbase's direct listing. It was helped by having a reference price from the Nasdaq Private Market. Now imagine if that trading had happened on-chain, globally, 24/7, with full transparency. The IPO process would have been even smoother and more accessible. By applying that age-old 'secondary first' principle, blockchain really is unlocking private markets and creating a more efficient path to an IPO.
Arthur: That makes perfect sense. So, to wrap this all up, what are the key things our listeners should take away from this?
Mia: I think there are five key points. First, remember that markets historically start with secondary trading, not IPOs. Second, this 'secondary first' pattern is visible everywhere from Amsterdam's coffeehouses to the origins of Wall Street. Third, this secondary liquidity is the lifeblood of the market—it provides exits, price discovery, and lowers costs. Fourth, today's private markets are stuck in an inefficient, old-world model. And finally, blockchain technology has the potential to fix these issues, creating a more efficient secondary market that will ultimately fuel, not replace, the IPOs of the future.