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21X: Tokenising securities, bonds, and funds for a regulated future

21X is on a mission to become the very 1st regulated European DLT Exchange

This article will divided into 5parts: The Problem, The Solution, The Team, The Partnerships & Roadmap, and The Conclusion, so make sure to begin from the start (The Problem) before moving on to the other parts.

The Problem:

For us all in crypto, I think we can agree that, without a doubt, the problems with most exchanges today seem to mostly be around the risk of hacks and security, lack of liquidity, regulation, and so on.

Ever since the collapse of Terra (LUNA) back in May 2022, numerous crypto exchanges were collapsing, like BlockFi, 3AC, Celsius, and more because these exchanges were not regulated and secure enough to protect customers' assets and were never held accountable for anything going wrong, and even worse, they were caught using customers funds to withdraw these assets for themselves and squeeze the liquidity from the exchanges dry.

Below is the list of problems that most crypto exchanges face today:

  • Issues with Security and Hacks - Every security hack and breach is frequent in the crypto industry and, in all honestly, is very frightening for any user joining a new exchange. This is most concerning for every crypto exchange because it implies that any user's personal information may and can be stolen or compromised for the hacker's benefit.

  • In addition to this, any kind of fraud and scams that cause users to lose life-changing money must be addressed to safeguard those who invest in coins. The solutions to this can be 2FA and cold storage, but the mitigation of hacks and stronger security need to first be addressed and solved if any exchange wants to attract any retail or institutional customers.

  • The Slow Process of Regulation - As we’ve all seen with the debacle with the SEC and the regulation of crypto, applying existing regulatory frameworks to digital assets, or developing new ones, is challenging for several reasons. First and foremost, the crypto industry is evolving at a rapid movement, meaning that regulators are now struggling to acquire any new talents and learn the skills of every aspect of the crypto space to keep pace, given the stretched resources and many other priorities.

  • Also, the process of monitoring the crypto markets is difficult because the data is always fluctuating, and regulators find it a little tricky to keep any tabs on thousands of actors/users who may not be subject to typical disclosure or reporting requirements.

  • The Issues with Liquidity - Lastly, market liquidity is crucial and is of utmost importance for several reasons, as it affects how quickly investors can initiate and close their positions. Since there is always a user who’s prepared to take the opposing side of a particular position, a liquid market is often linked with lower risk. Thus, this might draw in speculators and investors, enhancing the market’s favourable conditions.

  • The issue with centralised exchanges (CEXs) is that they enable more than 90% of all transactions in crypto, further suggesting that they are solely responsible for the vast majority of trading activity. However, on the other hand, decentralized exchanges (DEXs) sometimes lack the proper liquidity due to a lack of volume, thereby making it challenging to locate buyers and sellers when trading volumes are low.

  • There’s also the problem with server lag times at exchanges and the other technical issues/concerns are worsening. As a result, these issues threaten the continued operation of exchanges with a decreasing user base.

With all of these issues in mind, regulation and stricter rulings certainly need to be in place for these exchanges to run legitimately, offer digital assets to customers to retail and institutions legally, and be held accountable for anything that can go wrong.

At 21X, regulating and listing digital assets such as securities, bonds, and funds are of the utmost importance when wanting to attract mass adoption and run a legitimate exchange.

The Solution:

In simple terms, 21X is building a DLT-based exchange on a public permissionless blockchain (Aleph Zero and soon other chains), allowing for highly efficient disintermediated, and secure trading of financial instruments. So, what’s their solution to building a regulatory-driven exchange on a fast, permissionless blockchain?

Below, you’ll find what they want to achieve when solving secondary markets for blockchain-based financial instruments:

  • All Asset Types - 21X will allow access and trading of all DLT financial instruments such as stock, bond, and fund tokens.

  • Multilateral Trade - The exchange gives the market direct access for everyone, which enables regulated multilateral trade between investors, institutions, and market makers.

  • Unlocked Liquidity - Since 21X gives open access for any onboarded user, this will enable deep liquidity for all assets on a public permissionless blockchain infrastructure.

  • Smart Contract Based - For counterparty/credit risk to be non-existent and 24/7 trading to be enabled, 21X deploys smart contract-enabled matching and settlement.

  • EU Regulated - 21X’s primary goal is to get licensed under the EU DLT Pilot Regime for their future DLT trading and settlement system, allowing 21X to become an end-to-end service provider reaching from asset tokenization, issuance, and distribution to listing and trading.

  • Institutional Grade - To be an institutional-grade level exchange, 21X has enabled tokenization, registry, and reporting without enabling trading and without further intermediaries.

This all sounds good, right? But what about the technology that 21X is utilizing on their exchange? At 21X, they will be building a DLT market infrastructure that is to be the first of its kind - leveraging peer-to-peer settlement and atomic matching of financial instruments natively on the blockchain. Below is a list of the technological solutions that 21X is bringing to their exchange:

  • Fast & Seamless - 21X’s exchange will have a built-in central-limit order book that applies atomic matching and settlement between E-Money (EUR) and asset tokens.

  • Smart Contract Based - 21X will make both cash and securities settlement smart contract-based and any whitelisted wallet can trade in real-time using their built-in central-limit order book.

  • Interoperable - To fulfil their multi-blockchain approach, they will need to admit any regulatory-compliant token to trading that’s independent of blockchain and token standards.

  • White-label frontend - Since 21finance is a subsidiary of 21X, they will offer white-labelled digital asset platforms that will be seamlessly integrated with 21X’s trading functionality.

  • End-to-end processes - Because 21X lives and breathes process excellence, they will be applying a high level of test automation, regular penetration tests, and relying on audited smart contracts.

  • API Functionality - Finally, for enterprises that want to integrate 21X’s exchange into their digital asset front-end solution, 21X will allow market participants and financial institutions to trade on 21X by integrating their REST API.

Finally, 21X’s exchange seeks to benefit both CeFi and DeFi in a regulatory-driven market. For traditional stock exchanges, there’s a big no. of intermediaries out there, and they’re involved between a retail or institutional investor and the exchange. To route transactions between buyers and sellers in a regulated and compliant way, intermediaries, like custodians, CSDs, transfer agents, or clearing houses, are needed to go through this process and to be honest, this process is slow, complex, and costly.

However, with the rise of DeFi, disintermediation is finally possible! Under the EU DLT Pilot Regime, 21X enables peer-to-peer trading between buyers and sellers without the need for further intermediaries. With this feature being possible on the exchange, retail and institutional investors will be able to trade directly on 21X after running through their onboarding process to be compliant.

21X’s exchange will solve the issues within the traditional markets with the use of peer-to-peer trading for buyers and sellers that takes away the complexity of intermediaries!

The Team:

As previously stated, 21X was founded by 21finance, a company that offers innovative, decentralized software solutions for banks, financial intermediaries, and companies outside the financial sector that want the opportunity to maintain digital marketplaces for the distribution of financial products.

With an exchange that wants to be the 1st regulated European DLT Exchange, it's a no-brainer to say that the team at 21X will be made up of individuals and experts that excel in various sectors, like banking, finance, cryptocurrency & blockchain, marketing, software development, etc. Below is a list of some of those individuals:

Max Heinzle (CEO):

Max is the CEO of 21X, and also the Founder & CEO at 21finance. In his past careers, Max co-founded Mezzany back in 2015, a pioneer in crowd investing in Germany with a transaction volume of more than 100M EUR and 90K+ registered users. He has personally worked as an Investment Analyst, Executive Board Director, Head of Investor Relations, Head of Capital Market, and much more. He’s been in the crypto/blockchain space for 6 years now, with him founding 21 Finance back in 2017 to help streamline the process of digitizing assets for traditional banks. He graduated with a Master of Science (MSc) in Global Baking & Finance from the European Business School in London back in 2011.

If you would like to know more about Max's work, here's his LinkedIn profile.

Ulf Medek (COO):

Ulf serves as the COO at 21X (joined back in October 2021). Professionally, he is known as a lawyer and has experience in the financial industry for more than 25 years. In addition to working in various legal departments (banks, insurance companies, pension funds, investment firms, etc.), he has been a managing director, board member, and supervisory board member of various financial intermediaries and service companies in the financial industry. Notably, he served as Administrative Director for an AIF in Luxembourg and his activities focused in particular on regulatory challenges, AML/KYC topics and organizational issues, capital markets law, company pension law, and AIFMG.

If you would like to know more about Ulf's work, here's his LinkedIn profile.

Marc Hegen (CTO):

Mark is the CTO at 21X (joined back in June 2021) and has worked several years in the area of SW and product development for automotive Tier 1 and engineering suppliers. He built up cross-national development teams and headed a development division with more than 200 employees. As a former IT auditor, he has experience in IT Security and process development, and during his career, he always worked with spearhead technologies and has successfully led projects in automated driving, AI, and IoT.

If you would like to know more about Marc's work, here's his LinkedIn profile.

Mathias Breier (CFO):

Mathias is the CFO at 21X. Previously, he has also worked as a CFO for both Valida Industrie Pensionskasse AG & Karrenblick Wohnbau, as the Head of Finance at Valida Vorsorge Management, as a Strategy Consultant at DaimlerChrysler AG, and as the Head of strategy, risk management, and product development for Raiffeisen Capital Management. He graduated with a Master's degree in business administration, finance, banking, and tax law at WU (Vienna University of Economics and Business).

If you would like to know more about Mathias' work, here's his LinkedIn profile

And if you would like to see the rest of the amazing team working on 21X, here’s the link to their 'About' page.

The Partnerships & Roadmap:

By now, the partnership between 21X and Aleph Zero is nothing new to us, and if anything, this can help push and drive the next bull run when it comes to regulated digital assets such as securities, bonds, and funds. The partnership between the two details as follows:

  • 1st Objective - Bring 21X to Aleph Zero, so they can explore the network’s capabilities in a regulatory-driven market, all while boosting the overall privacy features of 21X across multiple networks.

  • 2nd Objective - The next step after the 1st objective is to deploy a regulatory-driven token standard to the Aleph Zero ecosystem, so they can support the process of stimulating the regulated DeFi ecosystem of the network.

21X wants to meet the security and regulatory requirements of the EU DLT Pilot Regime for their exchange, so why have they chosen Aleph Zero to do this exactly? Well, the primary reason as to why 21X has chosen Aleph Zero to deploy their exchange on there as well as utilize their technology is because, to quote Max Heinzle, founder & CEO at 21finance:

“The specific features of Aleph Zero, such as privacy, security, and instant finality, make the network an ideal DLT for what we’re looking to accomplish. We’ll be working together to provide necessary building blocks for a privacy-preserving, regulated DeFi ecosystem on Aleph Zero in general.”

For the most recent developments (as of writing/the 1st November 2023), here’s what they’ve got to say:

  • 21X has stated that while their partnership with Aleph Zero was announced already in April this year, they’re happy to share that the first milestones of bringing 21X to AZERO have been completed. On top of that, since they also want a multi-chain approach, they’ve also shared that an official partnership with the Polygon Network is on its way and plan to deploy their exchange on Polygon as well. Finally, they have secured further collaborations and backing with projects such as IDNow, SanctionScanner, Coinfirm, and more.

  • The project had just rebranded from EDX to 21X back on August 21st, 2023 due to the fact they’ve further clarified on several legal aspects that they plan to roll out their product offering globally and have decided for a clearer branding that reflects the origins of 21finance.

  • To the best of their knowledge, 21X has handed in their license application as the first DLT Trading and Settlement System (DLT-TSS) with the German financial regulatory ‘BaFin’ back on March 23rd, 2023. Additionally, they are close to the finish line of answering the detailed questions from BaFin, ESMA, and the German Federal Bank that they received as feedback on their application, meaning that they are one step closer to obtaining their full license at the beginning of September.

  • Finally, they have been heads down focusing on getting their market infrastructure to go live, with the prototypes of their Smart Contracts already completed. They are expecting to launch their first demo version of the exchange in Q4 2023 and plan the exchange to go live in early 2024.

21X is working with and backed by some of the well-known companies out here in the crypto space.

21X’s primary goal is to become a licensed DLT Trading and Settlement System under the EU DLT Pilot Regime, but what does the EU DLT Pilot Regime ask from them exactly?

Well, the EU DLT Pilot Regime entered into force on June 23rd, 2022, and the program proposes three categories of DLT market infrastructures:

  • DLT Multilateral Trading Facilities (DLT MTF)

  • DLT Trading and Settlement Systems (DLT TSS)

  • DLT Settlement Systems (DLT SS)

Out of the three categories listed above, 21X applied for DLT TSS and will combine the regulatory frameworks of both a DLT MTF and a DLT SS. Moreover, part of the requirements proposed by the European Securities and Markets Authority is for the projects under this regime to have the total market value of DLT-transferrable securities recorded at any market infrastructure to not exceed 6,000,000,000 EUR at any moment of admission to trading or initial recording.

The Conclusion:

In conclusion, 21X is an enterprise-grade, digital asset exchange that aims to become the 1st regulated European DLT Exchange under the ‘EU Pilot DLT Regime’ and hopes to utilize Aleph Zero’s blockchain and privacy-enhancing technology for fast and cheap transactions, all whilst embracing a multi-chain approach. If done right and once their license is approved, they will position themselves to become the very 1st regulated DLT exchange ever in Europe (and globally) for tokenized financial instruments (bonds, funds, shares) and will be able to utilize the best technology possible that can lead them to see large amounts of transactions and liquidity on the exchange.




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