Analysis

A new trading platform for security tokens has launched with backing from Singapore Exchange (SGX), the country’s public stock market, and technical support from ethereum startup ConsenSys.

The 1X platform has gone live Wednesday with its first listing of an ethereum token, purchasable with Singapore dollars. The token represents about 7 percent of the shares of a Singapore fund manager called Aggregate Asset Management (AAM).

AAM raised about $4 million in fiat currency in the six weeks since May 4, 2019. Investors in the round received the corresponding ethereum tokens to account for their ownership, which is now tradable on 1X.

The goal of 1X is to provide an IPO-like platform but for private companies to raise capital and to increase liquidity in the primary capital market by using a public blockchain to validate transactions.

“We take a portion of private companies – usually 10 to 30 percent – and put that into a special purpose vehicle (SPV) … to back every token we mint for listing and trading,” 1X’s CEO, Haiping Choo, told CoinDesk, adding:

“The overall idea is to bring liquidity to an otherwise historically illiquid assets. We are starting off with private companies. In the future, we intend to apply the same workflow to other illiquid assets like bonds or real estate, etc.”

Global availability

1X was set up by Capbridge, a Singapore-based exchange for primary market stock offerings. Regulated by the Monetary Authority of Singapore, the country’s de facto central bank, Capbridge holds a Capital Markets Services license. It also has a Recognized Market Operator (RMO) license for 1X.

SGX, meanwhile, is a strategic investor in 1X, meaning the stock exchange not only has an equity stake but is also involved in business operations.

Each token represents actual company securities, Choo said. “Currently it’s only ordinary/common shares, but we may extend to other share types e.g. preferred shares and other types of securities such as convertible bonds etc.”

By using the ethereum blockchain to replace the role of a traditional settler, the exchange aims to reduce operational costs and make it available for global participants, in addition to the 1,000 accredited investors on the platform.

While Singaporean traders must meet the threshold of at least $220,000 in annual income and $1.5 million in net worth to qualify as an accredited investor, Choo said there’s no minimum requirement for investors from outside jurisdictions as long as they pass the know-your-customer (KYC) process.

For 1X’s part, the exchange charges a 2.5 percent transaction fee for each trade and a $3,600 listing fee a year for successful applicants.

Consensys’ role

Consensys, the New York-based blockchain software studio started by ethereum co-founder Joseph Lubin, helped design a solution for 1X to issue what are called “modified ERC-20 tokens“ to satisfy interoperability needs and regulatory requirements.

Daren Frankel, director of ConsenSys’ Singapore operations, explained that this design would allow the transactions of the securities-backed ethereum tokens to be visible on the ethereum network like any other ERC-20 tokens.

However, “it does not give custody of the assets directly to users, as the trading of shares on 1X is subject to a number of compliance checks,” he added.

That’s because all of 1X’s listings – both the tokens and underlying securities – are required to be fully stored by a third-party custodian licensed and regulated by the Singapore government. Choo said it works with Equiom Trust Singapore and plans to add more custodians.

In essence, while 1X functions as a centralized exchange, it does not hold investors’ private keys, and for every trade inside the exchange, on-chain transactions are required to go through the third-party custodian.

“When we designed this, we designed it to be a fully compliant, scalable and standardized way to onboard global companies and investors,” Choo said, “because the assets we are offering are securities, which are the most highly regulated asset class.”

Haiping Choo image courtesy to 1X

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