The Elephant In The Room: Cryptocurrency Exchanges In The Era Of STOs

The Elephant In The Room: Cryptocurrency Exchanges In The Era Of STOs

Registering a token as a security can be a hassle, but it requires basically time, funding and an experienced legal team to handle the work. Once the STO is registered and ready to go, the main task is to attract investment. After that is done, then the STO finally runs into a substantial obstacle: listing on an exchange. Most cryptocurrency exchanges are not licensed to handle securities trading, and if some are, they are definitely not licensed to handle securities trading in multiple jurisdictions.

The Regulatory Obstacle

Many of the exchanges that exist nowadays support trading in cryptocurrency assets that might be deemed as securities by certain regulators. That exposes them to liabilities, but taking a registered security is a whole different ball game. Traditional exchanges that are licensed to enable securities trading on the other hand, are not equipped to handle tokenized securities. This situation represents a regulatory obstacle that has created a void. That void is difficult to fill because there is a chicken and egg kind of impasse.

Not Enough STOs

There are not enough STOs to launch an exchange that is licensed to handle securities trading, and there are not enough licensed exchanges to ramp up STO launches. Although it is a hard to solve issue, there are a few emerging solutions that will take time to mature. The solution to this impasse is coming from the exchange side more than it is coming from the STO side. Changes on the protocol side are also bound to accelerate solutions on the exchange side.

Licensed for Securities Trading

Projects like Vertex are looking into securities trading licenses in places like the Cayman Islands. In the US, there is a possibility that bigger players, like Coinbase for instance, will use their existing infrastructure to apply for the necessary licenses to enable securities trading on their platforms. On the protocol side, Polymath and its collaborators are launching ERC 1400, which aims to facilitate the transformation of traditional securities into tokenized ones. With this, change, traditional securities’ trading platforms that already have licences, will be able to list STOs.

Evolving With the Blockchain Industry

The solutions that are evolving to close the STO-exchange gap, are being developed in tandem with the rest of the blockchain industry. This means change can be quick, but it will ultimately depend on the regulators who have to give out the licences. Until now, the world of cryptocurrency developed free of the shackles of regulatory constraints. Now, with the STO and the push to launch regulated security tokens, it is a matter of competition between jurisdictions to see which one will take the lead allow the market to keep on moving forward. In this process, willing buyers from certain places around the world, are bound to be excluded due to regulatory requirements, but at least STOs are coming closer to being as close to average cryptocurrency holders as they will ever be.


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