EDX Markets is a new crypto exchange that is backed by several titans in the financial sector. It went live on June 20, 2023, offering only four cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH). EDX is backed by big names in the financial industry, such as Citadel Securities, Fidelity Digital Assets, Virtu Financial, and Charles Schwab.
This is good news for the crypto community since traditional financial institutions are beginning to deploy capital to the industry. EDX’s entry into the market comes at a time when the SEC is suing crypto exchanges for alleged regulatory infractions.
What Makes EDX Markets Different from Other Crypto Exchanges?
EDX Markets is being promoted as a “non-custodial” exchange. This means that the exchange does not hold customer assets and instead uses a third-party custodian. Having a third-party custodian avoids potential conflicts of interest and security risks that may stem from holding customer assets. This separation of roles as exchange, custodian, and broker is what the Securities and Exchange Commission (SEC) has been asking for. This is due to the lessons learned from the FTX implosion wherein the exchange allegedly misappropriated customer assets.
EDX Markets also has plans to launch a clearinghouse later this year to help settle customer trades. A clearinghouse ensures that both parties honor their contractual obligations and reduces the risk of default or fraud.
Who are The Backers of this New Crypto Exchange?
EDX Markets has raised funding from several prominent investors in the crypto and traditional finance sectors. Some of them are:
• Citadel Securities: A leading market maker and liquidity provider for equities, options, futures, fixed income, FX, and crypto markets. This titan is also one of the largest designated market makers on the New York Stock Exchange
• Fidelity Digital Assets: A subsidiary of Fidelity Investments, one of the world’s largest asset managers with over $10 trillion in assets under management. Fidelity Digital Assets offers custody and other crypto services for institutional investors.
• Charles Schwab: A leading brokerage firm that provides investing, banking, trading, and advisory services to millions of clients. Charles Schwab Corp also owns TD Ameritrade, another trading platform for trading financial assets.
• Paradigm: According to their website, the company is a research-driven technology investment firm. It was created by Fred Ehrsam, co-founder of Coinbase, and Matt Huang, a former partner at Sequoia Capital
• Sequoia Capital: A legendary venture capital firm that has backed some of the most successful companies in the world, such as Apple, Google, and Airbnb.
• Virtu Financial Inc: A leading financial technology firm that provides market-making, execution services, analytics, and data solutions to clients across asset classes and markets. It was founded in 2008 by Vincent Viola, former chairman of the New York Mercantile Exchange (NYMEX), and Doug Cifu.
Why Did EDX Only Offer 4 Crypto Assets?
BTC and ETH are the top 2 crypto assets by market capitalization. They have roughly 70% of the $1.1 trillion crypto total market cap. While Litecoin (LTC) and Bitcoin Cash (BCH) currently occupy the 12th and 27th place respectively. But why only these 4 assets? Why not other assets in the top 10?
Bitcoin and Ethereum do not need any introduction, but let us refresh our knowledge regarding LTC and BCH.
• Litecoin (LTC): Litecoin was launched in 2011 by Charlie Lee, a former Google engineer who wanted to create a lighter version of Bitcoin that could offer faster transactions and lower fees. Litecoin has a block time of 2.5 minutes, four times faster than Bitcoin’s 10 minutes. It is also a Proof-of-Work (PoW) asset similar to BTC. Supply will be capped at 84 million.
• Bitcoin Cash (BCH): Bitcoin Cash was created in 2017 as a result of a hard fork from Bitcoin, which means that it split from the original Bitcoin blockchain and became a separate cryptocurrency with its own rules and features. The main reason for the hard fork was a disagreement among the Bitcoin community over how to scale the network and increase its capacity to handle more transactions. BCH is a PoW asset.
Three out of the four assets, except ETH, are PoW. EDX may believe that PoW assets are more decentralized than other projects. We have to remember that the SEC goes after tokens that they consider securities. To be labeled as security, the asset in question should pass all criteria of the Howey test. One of the criteria is: To be derived from the efforts of others. It is about whether the profits come predominantly from the efforts of others. If there is a central authority managing the project, then it could be interpreted that investors are relying on the efforts of others. PoW assets are usually decentralized enough that no single entity is managing the network.
According to the SEC, “ICOs, based on specific facts, may be securities offerings, and fall under the SEC’s jurisdiction of enforcing federal securities laws.” BTC, LTC, and BCH did not have any initial coin offerings.
How Does This Affect the Crypto Industry?
The support of big financial institutions is needed for cryptocurrency to expand. Financial giants like Citadel and Fidelity have trillions of assets under management. Just imagine if they deploy a fraction of these assets to the crypto industry.
EDX Markets also seemed to have found a way to offer crypto without getting the ire of the SEC. First, they have opted to use third-party custodians for customer assets. Second, EDX limited its offering to four assets, which are for the time being not under the SEC’s crosshair. Choosing 3 PoW crypto assets that did not have any ICO is also a good way to avoid regulatory scrutiny.
The future looks bright for EDX Markets. It has the backing of big traditional institutions and is doing its best to avoid regulatory scrutiny. This is a blueprint that other crypto players could benefit from. Crypto adoption seems to be getting closer.
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