The maturation and growth of the cryptocurrency market takes its biggest step yet with DX, an exchange launching January 7th, which finally brings tokens to stocks, and vice versa. Cryptocurrency markets have long been relegated to legacy cryptocoins like Bitcoin and Ethereum, but also the smaller tokens issued by blockchain projects which funded themselves via initial coin offering (ICO). The ICO model offers little accountability and has lost out in favor of more compliant security tokens—a standout feature of the new DX exchange—which are physically backed by the assets they signify yet also hosted on the blockchain.
DX comes from a trifecta of financial powerhouses and expertise including NASDAQ, Bloomberg, and VC firm NFX, and will tokenize shares of major companies such as Apple, Google, Amazon, IBM, and others. With DX, it’s now possible to purchase tokens that represent real equity in the world’s most valuable companies, whether it’s with fiat currencies or cryptocurrency. As tokenholders become shareholders, the status quo in finance is undergoing a remarkable transformation.
Advancing the Securities Market
Like any traditional financial market, securities run on a network of centralized exchanges that employ electronic Contracts for Difference (CFDs) to manage custody and transactions. CFDs are offered on a tiered system with investors going to brokers, who are connected to the exchanges themselves.
The stratification of this system makes for clunky and expensive maintenance, precludes investors from accessing equity in foreign exchanges, and limits liquidity and price discovery of company shares. Both the administrators of this model and shareholders deserve better.
DX exchange offers the liquidity that accompanies a consolidated global equity network on blockchain along with its enhanced security and lower overheads as well. It unlocks the equity market for crypto investors and crypto volume for publicly-owned companies. These benefits are passed onto customers as well.
Holding a crypto and securities portfolio is safer given total compliance with EU regulations and a system run with NASDAQ’s own technology—ranked amongst the world’s most reliable trading infrastructure.
How Does It Work?
The engine of DX is FIX, or the Financial Information Exchange system which also is employed by NASDAQ and other top securities and options firms operating across the United States. FIX is essentially the messaging component of DX that keeps tokens and shares in sync between all parties trading on the exchange. On the blockchain side of the equation, tokens themselves are issued via the Ethereum blockchain by employing the ERC20 protocol, which is a powerful use case for the leading decentralized computer.
ERC20 compatibility means that DX deploys Ethereum smart contracts for the issuance of tokenized securities. The exchange’s interface is connected to a smart contract which receives cryptocurrency and then executes to issue the appropriate number of tokens, which exhibit a value mimicking share prices in real-time.
These tokens are ERC20 coins compatible with Ethereum and all products running atop the Ethereum blockchain. Apart from adding fungibility, this development means tokens can be rapidly transferred across the globe and stored in crypto wallets. Custody is also a breeze with DX, as the entire transaction history of the exchange’s many participants are recorded permanently on the immutable ledger.
Tokens In Practical Terms
Cryptocurrency investors who find themselves with a significant portion of their net worth tied to a blockchain wallet rather than their bank or brokerage account are understandably frustrated by the barriers preventing greater transactability between the two ecosystems. Balancing a portfolio that includes all asset classes is difficult because transferring funds between stocks and cryptocurrencies means transitioning to fiat currencies at some point.
Tokenized stocks are listed against counter currencies like ETH and BTC, so instead of incurring fees on both ends of your cash withdrawal and deposit, you can send ETH directly to your DX wallet to buy Facebook shares. The backwards compatibility of this system also means you can sell your Facebook shares for other cryptocurrencies using the same methodology, shaving precious time and costs from the process.
This link to ETH is a lifeline between the cryptocurrency market and what we once termed the “traditional” market. If the lines between the two are starting to appear blurred, you’re not alone, and this fact is illustrated best by the Estonian Financial Intelligence Unit’s stamp of regulatory approval for DX. This is the biggest signal that institutionalized financial markets have finally opened their doors to cryptocurrency, and the merger is especially positive for retail investors.
As other assets are onboarded to blockchains, the new technology will allow for markets to flourish around the clock without maintenance, enjoy better fraud and network protection, and take advantage of a frictionless online investing and banking experience. Although blockchain has struggled to gain relevance in terms of upending traditional financial services, this latest development is a great step forward for all stakeholders in financial markets.
These advances mean that an era when investors will be able to hold and manage their entire portfolio from a personalized wallet isn’t far off; it’s already arrived.