The EU’s DLT Pilot Regime has taken a major step forward – it has issued the first licence for the operation of a fully regulated, EU compliant blockchain-based trading and settlement system. Granted by BaFin, Germany’s financial supervisory authority, the licence was issued to 21X, a tokenised securities exchange based in Frankfurt.
With the licence, 21X is now recognised as a financial market infrastructure (FMI) listed in the public registers of both BaFin and the European Securities and Markets Authority (ESMA). The firm plans to launch an exchange and settlement system on public permissionless blockchain network Polygon POS in the first quarter of 2025.
A milestone in regulation
Ledger Insights points out in a report why the development represents a milestone in regulation: 21X will be allowed to replace the conventional model of an exchange and a central securities depository (CSD) with smart contracts that confirm trades and exchange securities for stablecoins atomically. This was not possible before the DLT Pilot Regime, because EU regulations required that secondary markets use separate CSDs. Additionally, the licence will also enable the holding of the shareholder registry of an asset on chain without using a CSD.
Self-custody
Under the DLT Pilot Regime, exchanges are allowed to engage directly with retail investors, as long as those investors have been put through know your customer (KYC) and anti-money laundering (AML) procedures. 21X will also be working with brokers, financial institutions, and corporate treasuries.
21X CEO Max Heinzle says in a press release, “For the first time ever institutional and retail investors can trade and settle tokenised securities on a fully regulated, blockchain-based exchange with the same level of trust, security and compliance as traditional markets.” He commends the EU regulatory framework for taking steps to encourage the mass adoption of tokenised money and assets. “It enables self-custody; it removes clearing and corresponding settlement risks; it eliminates unnecessary complexities by reducing intermediaries.”
Making an impression
Although other digital exchanges exist, such as Switzerland’s SDX and Singapore’s ADDX, Ledger Insights explains why 21X remains unique: “It combines a permissionless blockchain, with a single licence that covers trading and settlement, in combination with the recognition of DLT as the registry and retail investor access”. In contrast, both SDX and ADDX are on permissioned chains, while SDX “only engages with institutions and has a conventional CSD licence”.
The first security on the new platform will “likely be a tokenised money market fund”, Ledger Insights reports. 21X has revealed that it also has its sights set on digital equities, funds and real-world assets such as real estate or artworks. The goal is to provide an end-to-end platform that covers asset tokenisation, issuance, distribution, listing, and trading.
