Private Markets Shift to Synthetics
Javier Avalos, co-founder and CEO of Caplight, on building synthetic derivatives of private stock
This points to private markets becoming less about physically moving shares and more about trading economic exposure. Spot trades in private stock are slow, bilateral, and fragile because every deal depends on issuer permissions, transfer logistics, and weeks or months of settlement risk. A derivatives layer turns that into something closer to public markets, where investors can hedge, add exposure, or trim risk without forcing actual shares to change hands every time.
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The current spot model is still basically a broker finding one buyer for one seller, then waiting through ROFRs, transfer approvals, and cap table updates. That works for occasional liquidity, but it does not scale well for hedge funds, pensions, or crossover investors that need fast execution and risk management.
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Private market evolution has already followed this path in steps. First came brokered Facebook era trades, then software venues like Forge, EquityZen, Carta, and Zanbato, then issuer controlled tenders and data layers. Caplight is arguing the next step is synthetics, where price exposure can trade separately from share transfer.
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The big strategic effect is role separation. Long term company partners, founders, employees, and VCs can keep owning actual shares, while financially motivated investors trade calls, puts, baskets, or other contracts tied to value. That reduces cap table noise and makes private stock easier to underwrite as an asset class.
The market is heading toward a stack that looks more like public markets, with systems of record, broker networks, pricing data, recurring issuer programs, and eventually a deeper derivatives layer on top. As that stack fills in, private companies can stay private longer while investors get more ways to price, hedge, and finance exposure without relying on one off spot trades.