On the flip side of the SEC’s regulatory efforts, a few cryptospace players have made it through and have created what the industry’s future could look like.
Crypto broker-dealer INX is one of those.
While there may be several events which are yet to occur, things may still work out differently as America and the rest of the world figure out how these technologies will help solve problems.
We reached out to Itai Avneri, Deputy CEO & COO of INX, a regulated broker-dealer for further explanations. Here’s what he had to say.
Itai Avneri, Deputy CEO & COO of INX
E-Crypto News:
How has INX fared during SEC’s current regulatory sweep?
INX has navigated the SEC’s regulatory sweep successfully due to our proactive decision to be a regulated entity from the very start. We were the first company to hold an SEC-registered IPO on the blockchain and have been at the forefront of regulatory developments ever since. Our approach not only anticipated regulatory changes but also built a strong trust foundation with our clients. We see INX as a bridge between the legacy capital markets and their future.
INX offers a comprehensive regulatory stack unique to the industry, including BD, ATS, TA licenses (SEC and FINRA) as well MTL in 46 US states. Additionally, INX’s end-to-end capital raise solutions and services are allowing companies that want to follow INX’s regulated path to seamlessly and successfully issue security tokens. In fact, INX has launched six exclusive primary offerings in 2023 to date.
E-Crypto News:
Is regulation a good or bad thing for the crypto space?
Regulation in the crypto space is beneficial. It provides investor protection, encourages institutional participation and lays the groundwork for sustainable economic growth, as long as innovators and regulators work collaboratively on sensible frameworks.
E-Crypto News:
What are the implications of the current legal challenges to the SEC’s regulatory moves?
The SEC’s intensified actions against unregistered crypto assets have likely signified that it is no longer business as usual when it comes to unregulated token offerings. Instead, regulated Security Token Offerings (STOs) will be the primary way for entrepreneurs to raise capital through tokenization.
As I have mentioned prior, we are in the midst of an industry-wide fire that is burning down the most compromised and vulnerable parts of the ecosystem – making way for the regrowth of market participants that are resilient, innovative and regulated. Regulations must be respected and embraced, and there’s no room for wishful thinking or a head-in-the-sand mentality. Too many have already been hurt, and our financial future is on the line.
The next evolution of digital assets and the digital economy will be worth the wait – we just need the regulators to understand their role in managing that process and providing the needed clarity the market has so desperately been calling for.
E-Crypto News:
Please can you tell us about Republic’s recent acquisition?
The Republic acquisition is a strategic alliance of two compliance-first, retail-focused capital market firms, merging strengths to create a robust and comprehensive financial ecosystem. Along with a $5.25 million investment by Republic in INX, this partnership enables Republic’s 3 million customers to safely engage in digital asset trading, thus broadening their investment portfolios. Additionally, it provides Republic’s issuers the opportunity to tokenize shares and make them available for secondary market trading on INX ATS, paving the way for an innovative approach to capital market accessibility and a new era of financial democratization.
The partnership between Republic Group and INX is built on a foundation of shared values and a commitment to the democratization of finance across global markets. By combining their expertise and resources in both TradFi (traditional finance) and DeFi (decentralized finance), both companies are poised to introduce a wide-range of solutions that cater to both primary and secondary markets, while also building the underlying infrastructure to support the needs of a booming digital economy.
Our goal is to nurture and grow the global token economy by establishing the necessary infrastructure to not only support its operations, but to also curate an investment experience that excites investors from all over the world. Through our collaboration with Republic Group as a strategic investor, we are creating a fertile environment for both traditional and digital assets to thrive.
E-Crypto News:
What are the benefits of the Republic-INX integration?
The collaboration between Republic Group and INX represents a pivotal moment in the evolution of the Web3 economy. By combining their strengths, these two visionary companies aim to democratize finance, enable wider access to investment opportunities, and stimulate economic growth by accomplishing the following:
- Offer tokenized asset services (including but not limited to security tokens and tokenized shares) to Republic’s portfolio of companies and list them for secondary market trading on the INX ATS which is available for 24/7/365 trading
- Integrating INX’s comprehensive, end-to-end trading and conversion solutions for cryptocurrency assets like Bitcoin, Ethereum, and stablecoins into the Republic ecosystem
- Republic Group’s FX broker-dealer capabilities will be seamlessly integrated into INX’s platform
- Listing the Republic Note for trading on the INX ATS
- Integration of the INX trading platform with the Republic Wallet
E-Crypto News:
As the world moves towards tokenization. What role will INX play in the process?
INX was established five years ago with a clear vision to lead in the democratization of finance, while also creating a safe and secure trading platform for investors and issuers worldwide. As other companies took shortcuts to avoid regulation, INX was the first to initiate a collaboration with the SEC, launching the INX Token – the first SEC-registered security token to IPO on the blockchain.
INX is positioned to be a pioneering force in the move towards tokenization, offering an unparalleled platform where digital securities and cryptocurrencies coexist and trade together. Built on a solid foundation of technical and legal infrastructure, INX, with its INX.One platform, sets a global standard for effectively achieving democratization in financial markets, while simultaneously providing the necessary regulatory guardrails through close collaboration with U.S. and global regulators.
We are fully prepared to manage the mass adoption of digital assets in a compliant manner. This not only ensures our readiness to drive and shape this transformative financial trend, but also places us at the forefront of innovation, poised to usher in a new era of digital finance.
E-Crypto News:
Is a financial collapse coming? Is the American economy in trouble? How can crypto and Web3-related technologies save the day?
The Blockchain & Tokenization ecosystem is here to stay. Just as the early Internet Age, there were moments of “booms and busts.” However, the underlying technology and forward progress of innovation never waivered. The same is true in the Web3 era – especially as it relates to the digital economy. We aren’t going back to an analog-only financial system. The future is regulated tokenization and the organizations that survived early on will continue to thrive as the ecosystem expands.
E-Crypto News:
What impact will TradeFi have on DeFi?
In the not-so-distant future, TradFi and DeFi will be seamlessly integrated – working together to offer a better, more modernized and secure experience for investors. It’s happening now. DeFi is innovating TradFi, while TradFi is helping to establish regulatory guardrails in the DeFi world.
For example, INX has “imported” all of TradeF’si rules and regulations and embedded them into our operations and functionality in order to provide investors the confidence and comfort they are looking for, while also boosting mass adoption. We are taking traditional financial instruments and converting them to digital ones that offer a variety of benefits, including 24/7 availability, fractional ownership, self custody and more.
Related: What Are The Major Decentralized Finance (DeFi) Ecosystem Problems?
E-Crypto News:
How will institutional participation encourage crypto/web3 adoption?
Institutional participation fosters crypto and web3 adoption by injecting capital and legitimacy into the sector, and easing diverse demographics into the use of wallets and related technologies. However, the UX and regulatory aspects of web3 must evolve to accommodate these institutions fully.
Traditional exchanges are eager to participate in the tokenization revolution, as evidenced by the proactive steps taken by asset managers like Nasdaq, Goldman Sachs, JP Morgan, HSBC, and other key players. These institutions are diligently laying the groundwork for a tokenized future by developing comprehensive infrastructures that span the entire lifecycle of tokenized assets. Such infrastructure, designed to operate on both permissioned and public blockchains, is poised to support diverse asset classes in the far-reaching Web3 ecosystem.
A major development in the inclusion of institutional participation in the digital economy recently occurred INX and BitGo launched a pilot enterprise-level wallet management solution for regulated security tokens. Combining the very best of Web3 with the regulatory guardrails of INX’s SEC-registered platform, INX.One, institutional investors like Family Offices and Venture Capital Funds have the highest standards of wallet management through BitGo’s tried and tested policy management solution allowing setting of policies with spenders, viewers, approvers and administrators.
This enterprise-level solution removes significant barriers of entry that have previously plagued this aspect of the security tokens market and as a result, enables institutional investors to take full advantage of the opportunities that exist in the tokenization ecosystem.
Real-world assets Ripe for tokenization:
- Digital ADRs: ADR stands for American Depositary Receipt, which is a certificate issued by a U.S. bank that represents ownership of a foreign company’s stock. Digital ADRs are issued and traded on blockchain-based platforms, allowing investors to trade foreign stocks more easily and quickly. The use of blockchain technology can reduce the costs and time associated with traditional ADRs, as well as provide greater transparency, security and 24/7 access.
- Tokenized Shares: These assets are simply digital tokens that represent ownership in a company, be it public or private. Mirroring the essence of traditional shares, including offering rights to share company profits and the ability to participate in voting processes, Tokenized Assets’ digital nature sets them apart. Unlike their traditional counterparts, tokenized shares can be freely bought and sold on digital asset exchanges without relying on a conventional stockbroker with around-the-clock trading.
- Digital Bonds: Digital bonds (government or corporate bonds) are debt securities issued and traded on blockchain-based platforms. Like traditional bonds, digital bonds are loans made to an issuer that will be paid back with interest over time. However, digital bonds can be traded more easily and quickly than traditional bonds, and they may have additional features such as automatic coupon payments and smart contract-based settlement.
- Tokenized Debt: Tokenized debt is a type of digital asset that represents a debt obligation. Tokenized debt represents a loan made to an issuer that will be paid back with interest over time. However, unlike traditional bonds, tokenized debt is issued and traded on blockchain-based platforms, allowing for greater transparency and efficiency in the issuance and trading of debt.
The transformation of a well-known, inherently stable, and pre-regulated asset into a blockchain-powered tokenized share is not only appealing to present-day investors but also represents a highly anticipated and unavoidable progression in the digitization of the global financial system. However, with any transformational movement in an industry (and beyond) it’s a work in progress. As the industry evolves and more players (digital and traditional) participate in the digital economy, the challenges of regulatory clarity, along with the use of standard technology protocol and platforms will have to be overcome.
In the immediate future, a growing number of companies will embark on various forms of asset tokenization. This entails leveraging hybrid models where segments of a traditional asset are tokenized and subsequently traded on fully regulated exchanges. Financial institutions of all sizes recognize that embracing tokenization solutions holds immense potential for increased productivity, democratization, and ultimately enhanced value for investors in the ever-evolving realm of Web3.
Related:Is Asset Tokenization the Future of the Crypto Space? (Roundtable Interview)
E-Crypto News:
What is the impact of the tokenization of finance? Why focus on the finance industry?
The facts are clear. Cryptocurrencies, and especially the tokenization of securities, are a natural continuation of society’s transition from physical to digital, from the days of stock and bond certificates to electronic delivery, global settlement, Digital bond and CBDC. The Blockchain, and all that comes with it, represents a seismic shift in markets that will drive down transaction costs and create a tidal wave of innovation in finance. These innovations will benefit issuers and investors in the US and globally. The potential of the tokenized assets industry, as shown in the latest BCG report, will grow 50X and worth $16 trillion by 2030. However, to secure those benefits, we must minimize the potential for accidents along the way and weed out illegitimate industry players that only hurt progress instead of promoting it.
Financial institutions of all sizes recognize that embracing tokenization solutions holds immense potential for increased productivity and ultimately enhanced value for investors in the ever-evolving realm of Web3. The transformation of a well-known, inherently stable, and pre-regulated asset into a blockchain-powered tokenized share is appealing to retail and institutional investors. Tokenization enables 24/7 trading, enhancing liquidity for previously illiquid assets like real estate and venture capital, and provides built-in compliance and transparency via blockchain technology.
In the immediate future, a growing number of companies will embark on various forms of asset tokenization. This entails leveraging hybrid models where segments of a traditional asset are tokenized and subsequently traded on fully regulated exchanges. Financial institutions of all sizes recognize that embracing tokenization solutions holds immense potential for increased productivity, democratization, and ultimately enhanced value for investors in the ever-evolving realm of Web3.
More and more use cases are coming to fruition as DLT providers partner with traditional institutions. For example, interest rate swaps based on Secured Overnight Financing Rate (SOFR) can now be traded in a DeFi environment. Traditional finance companies have leveraged these SOFR swaps for years to hedge against rate fluctuations and now Avalanche can do the same in a digital way.
E-Crypto News:
Why are crypto projects hesitant to pass securities regulatory processes? Are there any hidden issues?
Some players in our industry are not happy about the additional costs and regulatory “burdens” for issuing unregulated digital assets. But, let’s face it, the lack of clear regulations has been a significant roadblock for institutional investors, who are hesitant to invest in a market perceived as unregulated and therefore risky. Without them, the digital economy has no chance of flourishing. The forest must burn for the regrowth to happen.
Those of us that saw this coming years ago, took the steps to work with the SEC – not against them – to build blockchain-based digital asset infrastructure and issue regulated tokenized assets with the long-game in mind. We don’t have to choose to fight, flight or flip. Instead, we chose to flourish.
It’s clear that the SEC is keeping a close eye on the cryptocurrency market and taking steps to protect investors. Whether you agree with their approach or not, one thing is for sure – the world of cryptocurrency is constantly evolving, and we can expect to see more changes and developments in the future.
So, with all of this enforcement going on, where does this leave the U.S. digital asset market? We argue that it’s exactly where it should’ve been all along – a diverse and robust ecosystem of responsible market participants that follow the decentralization doctrine, but respect that for the industry to flourish, it needs sensible guardrails.
E-Crypto News:
How has participation from regular folks been in recent times?
We are seeing crypto traders moving from decentralized exchanges to centralized – looking for a safe harbor to trade and yet feel protected. A centralized environment must be bound to traditional regulation (licenses stack, privacy preserving, segregation of customer funds, fully kyc/kyb/kyt onboarding functionality, audited by one of the big four accounting firms, etc.), and at the same time offer innovation to capital markets and trading experiences that include blockchain-based primary offerings, platform (desktop and mobile) for the algo trader (API) and the novice one, along with a single point of entry.
E-Crypto News:
What are the advantages of regulated security tokens?
To fully understand the usefulness of security tokens, you must first understand what they are and what they are not. Security tokens are regulated tokenized assets issued on the public blockchain that represent an investment in an enterprise providing a profit share or equity stake from such enterprise to the holder. Security tokens mimic the market for traditional equities, they are publicly traded on a SEC regulated market, which provides price discovery, but unlike traditional equities markets, the security tokens market is available to trade 24 hours a day, every day of the year. Trades settle instantly and directly to the investor’s wallet.
Regulated security tokens offer a multitude of advantages, including the ability to represent equity or dividends. They enable companies to raise funds from both retail and institutional investors, combining the programmability of tokens with the compliance of securities.
The tokenization of assets takes away many of the challenges of the legacy world such as T+ settlements, cross-border trading, cap-table management, and many other issues while providing more transparency and control to avoid crime and money laundering.
In the short term, we see rapid growth of permissive legislation spreading across the globe enabling the big institutions and banks to legally join the new way of trading in the longer term and migrate into Capital Markets 2.0 within two decades time.
Additionally, digital securities will continue to be used in more ways and by more people, from fundraising to traditional workflows. We also know an increasing amount of mainstream assets will be securitized and issued as digital securities, allowing for increased access to global liquidity.
E-Crypto News:
Where do you see INX in the next half-decade?
We take pride in our original vision, which continues to drive our subsequent actions like establishing INX.One, the first SEC-registered platform for issuing and trading both security tokens and cryptocurrencies. And, as the INX Token marks its second anniversary this month, our commitment to that vision is as strong as ever.
In the next five years, INX aims to onboard as many people as possible into the digital asset ecosystem and foster financial freedom for all. We will achieve this through continuous product development, community building, and adherence to our regulatory commitments. We see INX as a bridge between the legacy capital markets and their future.
