why tokenization usually makes things worse

the mistake is thinking it solves coordination problems when it only solves administration problems

24-Sep-25

When people pitch tokenization, they show you the same slides. Lower costs. More liquidity. Democratic access. I believed this for about six months until I modeled it for clean energy projects. The uncomfortable truth: tokenization only helps when you have the same problem hundreds of times. For everything else, it makes things worse.

The pattern is clear. Every successful tokenization looks identical to others in its class. Every failure is a special snowflake.

In Ontario, you can finance 50 solar farms annually. Same grid contract. Same revenue model. Same legal structure. Only difference is GPS coordinates. That’s a tokenization opportunity.

Now try tokenizing a small modular reactor. Five years to negotiate. Custom provincial agreements. Unique safety requirements. You might close one deal every three years. Adding tokens is like adding racing stripes to a bulldozer.

The mistake is thinking tokenization solves coordination problems. It doesn’t. It solves administration problems.

I discovered this modeling different project types. Carbon capture bottlenecks are never about shareholder management. They’re about provincial pipeline approvals. Finding CO2 customers. Construction risk. The models showed tokens adding 15-20% to legal costs while solving zero real problems.

But monthly distributions to 200 investors across 50 solar projects? Different story. Administration eats 2-3% of returns. Tokens cut that by 80%.

The threshold is precise: when you can reuse 80% of documents and structures across deals, tokenization helps. Below that, it hurts. Always.

The cruel irony: projects that need capital most are exactly where tokenization helps least.

Sustainable aviation fuel plants need unique feedstock agreements with farmers. Custom airline offtakes. Province-specific permits. Even tokenized, you still spend 18 months negotiating. The token just adds legal review.

There’s another problem: senior lenders. Banks lending $500 million need step-in rights. If things go wrong, they take control. Try explaining that ownership would be distributed among 10,000 token holders. The conversation ends quickly.

The survivors have monk-like discipline. One asset type. One jurisdiction. One structure. Say no to everything else.

When someone offers a deal that’s almost standard but needs tweaks, it’s tempting. But those tweaks compound. You end up maintaining ten different smart contracts. Your unit economics collapse.

Software lets you build once and deploy infinitely. Project finance is the opposite. Unless you force it not to be.

Here’s what happens next. The boring companies survive. Residential solar, not fusion reactors. Battery storage, not carbon capture.

Ambitious projects will stick with traditional financing. Maybe better software for documents. But not blockchains. The physics of project finance pushes against it.

The real innovation isn’t token standards. It’s making non-standard things standard. The company that makes small modular reactors as cookie-cutter as solar farms, that’s the breakthrough.

For 90% of infrastructure, tokenization makes things worse. Higher costs. More complexity. Longer closings.

For the 10% where it helps, administration costs drop 60%. But that 10% is specific: standardized, repeatable, high-volume assets with predictable cash flows.

The path forward isn’t revolution. It’s selection. Pick the narrow band where tokens add value. Ignore everything else.

That’s harder than revolution. But it’s what works.