Digital asset platform, 21X, secures the first permit for digital exchange and settlement under the Digital Ledger Technology (DLT) Regulation Trial.

Digital asset platform, 21X, secures the first permit for digital exchange and settlement under the Digital Ledger Technology (DLT) Regulation Trial.

In a groundbreaking move, 21X, a pioneering digital exchange, has secured the first Trading and Settlement System (TSS) license since the EU's DLT Pilot Regime came into force in March 2023. This historic license, awarded by the German regulator BaFin, allows 21X to operate an on-chain exchange on a public permissionless blockchain (Polygon POS).

Unlike other exchanges such as SDX and ADDX, which operate on permissioned chains and have conventional Central Securities Depository (CSD) licenses, 21X does not. Instead, it replaces a conventional exchange and CSD with a single smart contract that confirms the trade and exchanges a security for a stablecoin atomically.

The first security on the system is expected to be a tokenized money market fund. Institutional and retail investors can trade and settle tokenized securities on this fully regulated, blockchain-based exchange, marking a first. This move offers an opportunity to prove that permissionless blockchains can safely host regulated securities.

The smart contract for trading and settlement isn't an automated market maker (AMM), but a central limit order book (CLOB) on chain. The exchange's operations under the DLT Pilot Regime allow it to innovate in a compliant manner while leveraging blockchain's benefits such as instant and atomic settlement, transparency, and programmability.

21X has partnered with Singapore-based SBI Digital Markets and fund administrator Apex. It has two stablecoin partners: AllUnity and Membrane Finance. Trading pairs are between a tokenized asset and specific regulated stablecoins. The exchange needs to be able to move tokens to a different chain in the unlikely event of an emergency.

Switzerland has a licensing regime that supports both trading and settlement, but there are currently no license holders. The DLT Pilot Regime is significant for 21X's launch of a regulated exchange and settlement system on a permissionless blockchain because it provides a controlled, regulatory framework that allows authorized market participants to experiment with tokenized securities and blockchain-based trading and settlement without requiring full prior regulatory approval.

This approach contrasts with other digital exchanges including SDX (SIX Digital Exchange) and ADDX (a Singapore-based digital securities platform) in several key ways. While SDX operates under Swiss financial market regulations and ADDX applies a tech-neutral regulatory approach, the DLT Pilot Regime allows 21X to operate an on-chain exchange on a public permissionless blockchain. This regime, established by the European Union, notably enables institutions like 21X to innovate in a compliant manner while leveraging blockchain's benefits. It essentially lowers regulatory barriers and offers legal certainty needed to operate regulated exchanges on distributed ledger technology (DLT) platforms, including permissionless blockchains.

21X plans to launch a regulated exchange and settlement system on a permissionless blockchain in Q1 2025. With its innovative approach and regulatory compliance, 21X is building the market infrastructure for the future of capital markets on-chain.

1. The European Union's DLT Pilot Regime has enabled 21X, a digital exchange, to secure the first Trading and Settlement System license, operating on a public permissionless blockchain (Polygon POS).
2. Unlike SDX and ADDX, 21X, as a fully regulated exchange, utilizes a smart contract for trading and settlement, replacing conventional exchanges and CSDs, and operates on a permissionless blockchain.
3. Upon launch, the first security on 21X's system will be a tokenized money market fund, available for trading and settlement by both institutional and retail investors.
4. 21X's smart contract system isn't an automated market maker but a central limit order book on-chain, enabling instant and atomic settlement, transparency, and programmability.
5. Singapore-based SBI Digital Markets and fund administrator Apex, along with stablecoin partners AllUnity and Membrane Finance, have partnered with 21X to facilitate trading pairs between tokenized assets and specific, regulated stablecoins.
6. The DLT Pilot Regime provides a controlled framework for authorized market participants like 21X, to experiment with tokenized securities and blockchain-based trading and settlement, lowering regulatory barriers and offering legal certainty for on-chain exchanges on distributed ledger technology platforms.

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