What are the hidden risks of investing in pre-IPOs? An article to help you avoid pitfalls

In 2026, the U.S. stock market is becoming the busiest IPO year in history. SpaceX secretly filed for an IPO at a $1.75 trillion valuation, OpenAI is preparing to go public at an $852 billion valuation, and marquee companies such as Anthropic, Kraken, and Consensys are also lining up. At the same time, leading crypto exchanges like Gate are rolling out Pre-IPOs tokenized products, lowering the original million-dollar-level access barrier to virtually zero—so that ordinary investors can get in early and bet on the IPO upside of these star companies.

However, the other side of low entry barriers and high return expectations is a minefield that ordinary investors can very easily step into. Pre-IPOs are never low-risk investments. They are high-risk games with a completely different risk structure.

Settlement Risk: The Project May Never Go Live

This is the most unique—and most fatal—risk in the crypto Pre-IPOs market. In traditional financial markets, the existence of the underlying asset is unquestioned. But the crypto pre-market introduces an entirely new dimension of risk: the project team may never issue the asset, which means the market cannot be converted into the standard spot or perpetual contract market, and it may ultimately be paused or delisted.

Put simply, the PreToken you buy is essentially a “promise for the future,” not a real asset that already exists. If the underlying company ultimately fails to list as scheduled, or if the token issuance plan is canceled, your PreToken may face the fate of going to zero directly. Unlike traditional securities investing, these tokens are usually not covered by any investor protection mechanisms under securities laws.

Extreme Premium Risk: You May Be Paying for “Sentiment”

Demand for Pre-IPOs assets is real, and the scale is enormous. But on the supply side, the existing solutions generally have structural flaws. The VCX event in March 2026 is a textbook case: VCX listed on the NYSE at a $31.25 issue price. Within seven trading days, its share price reached a high of $575, while its net asset value per share stayed around $19 throughout, with the peak premium approaching 30x.

This kind of extreme premium is not driven by expectations of excess returns from the underlying assets. Instead, it results from the combined effect of three factors: extremely scarce circulating shares, narrative backing from the AI sector, and asymmetric institutional access. When you buy at such a high premium, once market sentiment reverses or short-selling institutions get involved, the price can crash in a very short time. After Citron Research shorted VCX, the stock price dropped by about 40% on the same day.

Pre-Market trading also faces high premium risk. Pre-market prices are often pushed up by sentiment. If the official opening price is lower than your buy price, you will face losses immediately and directly.

Liquidity Traps

The illusion of liquidity is another major trap. Some platforms set up secondary trading markets for PreTokens, but the trading depth in the Pre-Market is far inferior to the main board. That makes it difficult for large funds to enter or exit, and prices are especially vulnerable to manipulation.

A deeper problem is structural mismatch. Traditional Pre-IPOs investment is designed for long time horizons; participants accept lock-up periods as part of the risk-reward trade-off. But participants in the crypto market are accustomed to high liquidity, fast execution, and flexible exit strategies. When illiquid assets are introduced into a high-liquidity culture, it creates a mismatch that must be managed carefully.

If exit routes, secondary markets, or redemption mechanisms are not clearly defined, user expectations will deviate from product reality. This kind of deviation can trigger not only price volatility, but also swings in trust.

Information Asymmetry

What crypto trading platforms try to do when entering the Pre-IPOs space is, at its core, to redistribute the “access layer,” giving retail investors opportunities that were previously available only to institutions. It may seem to make the competition more fair, but it only changes one variable—the way of entry. The deeper asymmetry still exists.

Institutional investors have structured due diligence processes, direct communication with founders, and preferential allocation terms. By contrast, retail participants who enter through the platform interface still rely on filtered data, delayed insights, and externally constructed narratives.

Based on real data, the return gap created by this information difference is striking. Take Kraken as an example: in November 2025, it completed an $800 million Pre-IPOs funding at a $20 billion valuation. But by April 2026, after trading in the secondary market, its valuation had fallen back to about $13.3 billion. However, the vast majority of retail investors can never get shares at the $20 billion valuation node. By the time the product is offered to the public, the valuation may already be a “watered-down” price—or even pushed to an unreasonable high level by sentiment.

Regulatory Uncertainty

Tokenizing equity and selling across borders faces uncertainty under strict securities law regulations. It is still unclear how different jurisdictions regulate the pre-IPO tokenized exposure, and there is a possibility the activity could be halted or the products could be removed.

A more covert risk lies in the underlying company’s “refusal to recognize” risk. Companies such as OpenAI and Stripe have issued public warnings, clearly stating that the equity held by the SPVs behind such tokens violates the transfer agreements. Token holders will not be recognized as company shareholders, and the SPV may also face the risk of sanctions by the company. In other words, the “equity backing” you pay for is simply not acknowledged by the company at all.

Summary

Pre-IPOs tokenization does open a door for ordinary investors that they previously could not access at all. But this openness also brings additional risks that do not exist in traditional Pre-IPOs investing: settlement failure, premium wiping out to zero, liquidity illusions, information asymmetry gaps, and regulatory uncertainty.

If you still want to participate in Pre-IPOs investing, you can refer to the following principles: keep your position within 5% of your total funds; diversify across multiple projects to hedge the risk of single-point failure; focus on whether the project team discloses the true legal entities, the equity structure, and a clear IPO timeline; and beware of “air stocks” driven only by concepts. At the same time, you must understand: you cannot treat these assets as short-term trades. They require an asset allocation strategy that matches a longer time horizon, lower liquidity expectations, and a higher tolerance for uncertainty.