Introduction
Security token exchanges are rapidly gaining traction within the crypto space. Plethoras of security token exchanges are initiated every week. Liquidity is an issue that has been plaguing and impacting the large scale adoption of security tokens. Therefore, the proliferation of security token exchanges is a welcome and critical development for the emergent industry.
Liquidity demystified
What is liquidity, you might ask? Liquidity refers to the readiness/ease with which an asset/token can be purchased and sold on the market. A characteristic feature of today’s security token market is the absence of liquidity. There are minimal security token exchanges operational that are subjected to regulations.
A firm opting to tokenize its shares doesn’t automatically mean that those shares are available for trade. Issuing is critical, but exchanges are a necessity to flourish. Liquidity is frequently pegged as one of the most significant benefits that security tokens provide in comparison to conventional securities. Liquidity is only expected to materialize when the forces within the crypto ecosystem are functioning in unison with one another.
What are security token exchanges?
Security token exchanges are categorized as an Alternative Trading System (ATS), which brings buyers and sellers together to identify counterparties for transactions. Alternative trading systems are subjected to the same regulations of broker-dealers, rather than an exchange. They provide facilities and a marketplace to facilitate the trade of securities. Alternative trading systems need to be authorized by the SEC (Securities and Exchange Commission).
Security token exchanges enable the trade of security tokens. They need innovative technological infrastructure that features compliance with SEC regulations and conventions.
Conventional securities are restricted in specific ways. A majority of issuing companies, banks, and P2P platforms are allowed to function in their regional jurisdiction and cannot permit the trade of securities outside of this jurisdiction.
Security token exchanges that have been developed from scratch can tackle these fundamental issues. While security token exchange platforms are restricted by their operational jurisdiction, they permit security trade on a much wider level without closure times, due to blockchain technology. Additionally, blockchain technology enables the ownership of security tokens to be recorded on the token, enabling secure and instant transferability of security tokens.
Developing a security token exchange
There are several factors that are up for consideration during the security token exchange development process. For example, security token exchanges have specific essential features that cannot be ignored during development. A few of these are as follows:
- Excellent matching engines – for the matching of buy/sell orders with minimal latency
- Security of hot wallets – this provides clients with a safe foundation to send, receive, and record their security tokens
- Multi-layered security – to enable secure trading, your exchange can be underpinned with industry-leading security feature sets
- KYC/AML authentication – this enables user identification verification while adhering to necessary protocol.
- Multiple currency transactions – to allow for streamlined integration of various cryptos and fiat into the exchange according to your firm’s needs
- Payment gateways – to enable the trade of security tokens with fiat through multiple payment systems
- Multilingual – to broaden the reach of your security token exchange, internationally
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