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Building the New Liquidity Solution for the Tokenized Stock Industry

The total security token market is currently valued at approximately $915 million. However, tradable volume for the industry is currently less than $11 million a month.

The necessity for exchanges to comply with the regulatory requirements that apply to securities and the fact that many jurisdictions, including the US, require regulatory holding periods has meant that adding liquidity is a more complex process than with other cryptos.

A key part of the security market is global liquidity, and because there is no global regulatory framework for cryptocurrencies, it is very difficult to create liquidity in the same way you would for traditional securities.

Direct Trading in the STO market

There are many different projects trying to apply a solution to security tokens’ liquidity problem. The most common solution so far is decentralized blockchain platforms that are regulated by the SEC and have been designated as Alternative Trading Systems (ATS). These platforms function by allowing buyers and sellers to trade STOs through a dark pool.

A dark pool is a privately organized exchange for trading securities. They allow investors to trade without revealing their intentions before the transaction is completed. In other words, buyers cannot see order books and instead submit their order to the pool anonymously for completion. The dark pool will then automatically complete the order by anonymously finding a seller to complete the trade. The transactions are then managed through a blockchain ledger.

Essentially, a dark pool creates a direct trade between a buyer and a seller. This is a solution that serves traditional security markets very well. It is also a method that primarily caters to institutional investors. The ability to perform trades without publicly exposing your order book serves an investor looking to carry out very large trades.

Projects like Archax and tZero have utilized this method to provide liquidity to their own STO exchanges to limited success. Despite that, this is a solution far more suited to traditional markets. It is very difficult to implement in the blockchain industry because the disparate nature of different crypto-markets across different regulatory zones means not enough traders can be found to create sufficient liquidity. It is the same problem that the first decentralized exchanges faced when smart contracts were used to facilitate direct trades.

The DeFi Solution

Of course, the liquidity problems of the first decentralized exchanges have been solved, leading to a huge increase in the size of the DeFi market. It is this solution that IX Swap will apply to the STO market, aiming to facilitate a similar explosion in popularity.

That solution is the automated market maker (AMM).

IX Swap is the first AMM that provides liquidity pools purpose-built for STOs and TSOs. Instead of trading directly with other users, traders can buy and sell STOs from liquidity pools. Liquidity pools function by locking tokens to represent both sides of a trade into a smart contract.

For example, an investor can deposit an equal evaluation of an STO asset and an IXS token into a liquidity pool. If a trader wishes to buy that same STO asset, they will input IXS tokens into the pool and receive the asset in return. The algorithm of the pool will then adjust the pricing so that future trades rebalance the evaluation of each side.

The advantages of this system are manyfold.

First, it allows traders to participate in the secondary market without relying on finding another trader to trade with. This greatly increases the speed at which STO transactions can be completed.

Second, it allows anyone to participate in the allocation of market-making capital just by supplying liquidity to the pools. This means that IX Swap is, for the first time in the STO market, creating an ecosystem that benefits both traders and liquidity providers alike.

The introduction of the AMM model saw the monthly DEX volume in DeFi increase from $39.5 million to $43.5 billion in just one year, constituting growth of 110,100%. It has established DeFi as a genuine decentralized alternative to the financial sector.

This is what the STO market needs, and this is what automated market makers can make happen.

The Multi-Trillion Dollar Step Forward

Security tokens are a multi-trillion dollar asset class that is still under development. To realize their potential, there are still hurdles to overcome. IX Swap presents the first liquidity pools in crypto with a legitimate claim over real-world assets. In addition to being a regulated solution to one of the tokenized stock market’s biggest problems, IX Swap creates an ecosystem allowing investors to earn through staking while their STOs lie idle over the investment period.

It is this ecosystem that will support the STO market and bring more users into the space, and this is vitally important for its future growth. To highlight how significant the STO market can be for investors, all of these solutions are offered significantly cheaper compared to the 1–2% fees that banks charge for private asset investments. The tokenized stock market could be the biggest thing to come out of crypto. IX Swap wants to be at the forefront of it.

About IX Swap

IX Swap is the “Uniswap” for STOs and TSOs, the regulatory and liquidity solution for security tokens and tokenized stocks.

IX Swap will be the FIRST platform to provide liquidity pools and automated market-making functions for the STO/TSO industry. The platform will facilitate the trading of security tokens through licensed custodians and security brokers, which will provide actual ownership and claim over these real-world assets.

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