Everyone’s talking about “tokens” again. But few people understand what they actually are.

Robinhood made headlines recently when it announced a new platform for tokenized trading in Europe — including access to shares of OpenAI and SpaceX.

To kick things off, the company set aside $1.5 million worth of these tokenized assets for eligible users.

For decades, private equity has created fortunes behind closed doors, available only to insiders and institutions.

Tokenization is going to change that by unlocking access to private markets and minting a new generation of billionaires along the way.

If you aren’t caught up on the tokenization hype, don’t worry. You’re not behind yet.

But now’s the time to understand what’s happening and what it could mean for the future of investing.

Here’s what you need to know about tokenization to keep up and stake your claim.

What Are Tokens, Really?

One of my goals as someone who writes about investing is to be able to explain even the most complex financial concepts to a relative.

They are smart people, but none of them have a background in finance. Here is how I would go about explaining tokens to them…

Put simply, these new tokens are contracts that you can trade with other people.

What does that mean? Let's use Robinhood's recent announcement as an example.

Robinhood created tokens representing ownership stakes in OpenAI and SpaceX, companies that ordinary investors have had no easy way to buy shares in.

When you buy a token, you are purchasing a contract with the token's sponsor that promises you'll receive the economic benefits of owning those underlying assets.

Ordinary investors have had no easy way to buy shares in these leading companies.

As a promotion in Europe, Robinhood issued tokens representing an economic ownership stake in these companies and distributed them to eligible users.

Is this like owning stock in these companies? In some ways, but not technically.

The tokens they established are a contract saying that the token’s owner will receive the economic outcome of whatever happens from owning shares in the company.

Robinhood took the shares it owned and likely placed them in a special purpose vehicle (SPV), essentially a separate company created to hold these assets.

Then, they will distribute any economic outcomes from those shares — such as dividends, sale proceeds, etc. — to the token owner.

This is a straightforward contract, not unlike an options contract.

Just like options derive their value from an underlying stock, these tokens derive their value from the underlying assets (like SpaceX shares).

The key similarity is that both create tradable contracts that give you economic exposure to something you don't directly own.

Another example that illustrates how contracts can track outcomes is the online betting market, such as Kalshi and Polymarket.

They allow you to “buy shares” in an outcome for an event, for instance, the winner of a presidential election.

Obviously, these platforms don’t own anything related to the election. But they can create a contract that says you will get a certain amount of money (say $1) if your bet is correct.

So if your candidate wins, the sponsor pays you $1. If they lose, the sponsor keeps what you originally paid for that contract.

If more people believe a particular candidate is likely to win, they will purchase those contracts, which then increase in value. Again, a tradeable contract.

Ultimately, this same concept can apply to almost anything that has an eventual outcome.

It could be the economics of owning a stake in a company, or a particular option's strike price. It could even be who wins the Super Bowl.

Now, is this good or bad?

The Risks and Rewards of Tokenization

Well, regulation to ensure that the underwriters of these tokens are willing and able to uphold the terms of the contract makes sense.

This is the same type of regulation that applies to the options markets.

Does it inject too much risk into the markets?

The same question could be asked of the options markets.

Again, it makes sense to have regulators who monitor these underwriters. This at least puts some guardrails around the growth in these products.

To summarize, tokenization is simply a new delivery system for something Wall Street has done for decades — creating contracts that track outcomes.

What’s different now is the access, allowing regular investors to participate in what was previously only available to VC funds, private equity, or accredited investors.

There's risk and regulatory uncertainty. But the infrastructure is being built.

The next wave of investing may not come from the public markets at all, but from tokenized access to private companies and other previously inaccessible assets.