On January 6, the Nasdaq-based DX.Exchange cryptocurrency exchange announced the launch of its platform, where it will be possible to acquire shares of multinational corporations such as Amazon, Apple, Facebook, Google, Intel, Microsoft, Netflix, and Tesla. Users of the platform will be able to trade tokenized shares of various companies using crypto deposits. Why is there a need for tokenization of shares and how will this method of exchange simplify the systems and expand the possibilities for interaction between the cryptocurrency and classical industries?
How Will the Platform Work and Where Does Nasdaq Come In?
The DX.Exchange trading platform will allow users to acquire tokens that represent shares of various technology firms listed on the world famous exchange Nasdaq. The company will use the Nasdaq compliance mechanism to facilitate digital securities trading and protect against market manipulation.
As statements read, deposits will be accepted in the BTC, ETH, BCH, USDT, DASH, LTC, and XRP. Clients of DX.Exchange, as explained by the COO Amedeo Moscato, will acquire ownership rights to the shares not directly, but through the purchase of tokens, which, in turn, will represent the shares of the firms.
“Henceforth, when they become a token holder, they own stocks or portions of the company’s stock, as the tokens are backed 1:1 to the real-world stocks. That makes them entitled to the same cash dividends that the stocks are worth,” says Moscato.
The DX.Exchange entered into an agreement with the Cyprus firm MPS Marketplace Securities Ltd, which resulted in MPS purchasing real stocks based on consumer demand and generating ERC-20 tokens to represent each share. The issuing company of the token is under the supervision of the Cyprus Securities and Exchange Commission, and DX.Exchange complies with the rules and authorities of the European Union (E.U.) and therefore obliges its users to undergo the KYC and AML procedures.
In addition to this mechanism, the platform plans to use the Nasdaq financial information exchange protocol, or FIX, the financial information exchange, which is the standard used by a number of U.S. securities trading firms. The standard message protocol used on the platform allows you to support trading through the API, meaning the platform can be integrated with market makers, liquidity providers, algorithmic traders, and hedge funds. DX.Exchange, unlike traditional trading markets, will work around the clock—just like cryptocurrency exchanges operate.
The Main Thing in the Tokenization of Shares Is Coordination
Crypto industry analysts are increasingly pointing to a relatively new development of events that can revive the market through the placement of companies’ securities like stocks and bonds on the blockchain.
The so-called security token is a new, fashionable, and hyped word. This term is part of a phenomenon in the industry known as “tokenization,” or the transformation of real assets into digital tokens. In the case of security tokens, traditional stocks and fixed income are converted into digital assets using blockchain technology.
Each token is supported by one share of the desired company, in which traders want to invest, and gives them the same cash dividends. Thanks to this, new opportunities for trading open up, and other forms of ownership of securities appear without intermediaries because everything is fixed on the blockchain.
Thanks to the essence of cryptocurrencies, investors can trade in digital shares 24 hours a day, even after the markets are closed. “The ability to trade around the clock, with a range of currencies, offers investors both convenience and liquidity,” as Dan Doney, co-founder and CEO of Securrency fintech firm, told CNBC.
The only thing that needs to be taken into account in the tokenization of corporate assets is the consent of firms to trade their shares using cryptocurrencies, Doney said. “We’re unsure and even skeptical of DX.Exchange’s model because we don’t think that it’s acceptable to list tokenized shares of a company without shareholder consent,” said the head of Securrency.
In a particular case with DX.Exchange, it turns out that you do not need to get this consent from companies because the crypto exchange uses the resources of Nasdaq, with which there are agreements. The interaction of representatives of a digital exchange, for example, with Apple or Google, whose shares are traded on Nasdaq, is only an ethical component left to the discretion of the company. In addition, DX.Exchange complies with E.U. requirements, which means that from a legal point of view, the project fulfills all the requirements.
Considering the above, while observing all the rules for placing shares and coordinating their activities with companies, the model of tokenization of shares may comply with regulatory standards. The symbiosis of a cryptocurrency and fiat industry can take securities trading to a new level of development.
New U.S. Bylaws for the Tokenization of Corporation Shares
In the future, companies will strive to tokenize their assets that are listed on exchanges. This is understood by the American politicians—namely, the governors of the states of Colorado, California, and Wyoming express support for the cryptocurrency market. According to the official website of the Wyoming state legislature, on January 16, a bill was submitted allowing corporations to issue digital coins based on the blockchain and tokenize shares.
If the bill is fully approved, it will enter into force on July 1, 2019. The document states that “the articles of incorporation or bylaws of a corporation may specify that all or a portion of the shares of the corporation may be represented by share certificates in the form of certificate tokens.” The bill lays the foundation for storing the so-called certificate tokens representing shares on the blockchain “or other secure, auditable database” and allows their digital transfer.
In addition, Wyoming lawmakers passed two new bills aimed at creating a regulatory environment conducive to innovation in cryptocurrency and blockchain. One of the bills establishes a new class of assets, defining “open blockchain tokens with specified consumptive characteristics [as] intangible personal property.” Another bill concerns the creation of a regulatory sandbox—a controlled and flexible test environment that will help ensure the adjustment of the necessary laws and regulations essential to make full use of innovations. A similar project was also proposed by the Ministry of Economic Development of the Russian Federation to create optimal conditions for business development.