Will Tokenizing Securities Revolutionize Trading and Investing?

ICOs (or Initial Coin Offerings) were the catalyst for the cryptocurrency bull market of 2017 and ultimately contributed to one of the biggest bubbles in modern history. For two decades, retail investors have watched as Silicon Valley venture capitalists have made billions investing in grandiose tech startups such as Facebook, Skype, Tesla and the like. This pent up desire to gain exposure to early tech startups led many retail investors to become infatuated with ICOs. Many ICOs persuaded retail investors they were buying the next Facebook. This idea was only further reinforced by the unprecedented increase in prices and overall market mania. Since the bubble popped, the cryptocurrency space has been looking for another catalyst to reintroduce mainstream interest and popularity. Many are hypothesizing that the tokenization of securities may be ‘the next big thing’ for the blockchain space.

Last week, Bloomberg published an article highlighting the launch of DX Exchange. This crypto start-up will tokenize shares of Tesla, Apple, Facebook and 7 other Nasdaq-listed companies. If all goes accordingly, DX plans to expand and eventually list assets from the New York Stock Exchange as well as the Tokyo and Hong Kong Stock Exchange. DX will provide users with the ability to buy tokens representing shares of stocks. Therefore, traders will have to trust that DX Exchange backs the shares on a 1:1 ratio. DX has partnered with MPS MarketPlace, who will custody the stocks on behalf of the token holders in a segregated account. Full transparency is necessary for these systems to be secure or else users may end up with a project like Bitconnect or Tether.

Although DX Exchange is not a trustless system, a successful implementation would be a big step for the cryptocurrency space. Furthermore, DX’s success would provide a glimpse of where the future of tokenized securities may lead. DX Exchange’s tokens are built on Ethereum which, as of now, has significant market dominance in the tokenization of securities.

There are many advantages to tokenizing assets on a blockchain. For instance, traders can buy a fraction of a share which democratizes the ability to invest in a stock with a higher share price. Additionally, users can trade 24/7 which will give foreign investors the ability to trade with unrestricted access. Users are also entitled to dividends earned on the platform, which makes DX Exchange comparable to any other existing trading platform such as eTrade or TD Ameritrade.

Even though DX Exchange is an interesting development, there must be demand. DX will only be successful if the market proves there is a verifiable use case for security tokens. In the end, exchanges want to dominate their market, and Binance Exchange is a prime example in the crypto space. If DX’s first mover advantage proves to be successful, it is likely that we will see a variety of new exchanges working to become the premier platform for trading tokenized securities.

Above all, crypto finance and traditional finance are now merging together. While they remained separate up until this point, the convergence of blockchain technology into traditional finance will only be more inevitable as time progresses. DX Exchange is one of the first instances in which all stocks, securities, and other assets will become tokenized on a blockchain.

Disclaimer: This article should not be taken as financial advice. I am not a financial adviser. This article is intended to educate readers on the recent development of the DX Exchange. The author of the article owns cryptocurrency.