DX.Exchange Halts the Trading of Cryptoassets – a Necessary Pause or a Scam in the Making?

Nov 4
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DX.Exchange, a digital platform that facilitates the trading of cryptocurrencies and tokenized securities, announced the temporary suspension of its services this Sunday. The announcement comes just nine months after the platform opened its doors to clients amid much fanfare.

The Estonia-based digital asset exchange – built on Nasdaq’s (NASDAQ:NDAQ) matching engine and market surveillance technology – announced in a blog post (read the post here) the termination of its services until the firm is able to tap fresh liquidity either through a merger or an acquisition: “We must inform the community that the board of directors of DX.Exchange has decided to temporarily close the exchange as we pursue a merger or [an] outright sale of the company. The costs of providing the required level of security, support, and technology, is not economically feasible on our own.”

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Consequently, the exchange has blocked further deposits, suspended the trading of all instruments on its platform, and has asked users to withdraw funds by the 15th of November. The company also assured its clients regarding the continued preservation of their funds: "All client funds are safe and need to be returned to allow a merger/sale to proceed."

The announcement further stated that should DX.Exchange – which maintains a staff of between 51 to 200 people according to its LinkedIn page – fail to acquire fresh liquidity in a timely manner, it could shutter its operations permanently.

DX.Exchange launched in January of 2019 and, up until recently, offered the facility to trade cryptocurrencies as well as tokenized securities such as stocks of Tesla (NASDAQ:TSLA) and Apple (NASDAQ:AAPL) as well as exchange-traded funds (ETFs) like Invesco’s (NYSE:IVZ) QQQ and SPDR’s (NYSE:SPGI) SPY. As a refresher, a ‘token’ refers to a particular asset or a utility that is represented by a unit of value on a blockchain. Tokens can represent any asset that is tradable and fungible, from loyalty points to commodities and even other cryptocurrencies. ‘Security tokens’ are specialized digital assets that represent an investment in a company and, therefore, holders of such security tokens are entitled to ownership rights as well as future returns in the form of dividends and share price appreciation. However, it seems that DX.Exchange has now permanently barred the trading of tokenized securities on its platform as the facility is no longer referenced on its website which, by the way, now only mentions cryptocurrencies. Readers should bear in mind though that all trading is currently halted, even that of cryptocurrencies.

As is customary, the development has divided people on social media with some even terming DX.Exchange’s business model a scam. Of course, such allegations are bolstered by the fact that, according to a report by CCN earlier this year, Limor Patarkazishvili – the sole shareholder of DX.Exchange – owned 90 percent of the suspect binary options trading platform, SpotOption. That platform, incidentally, was forced to shut down last year after the Israel Securities Authority passed legislation that prohibited the sale of binary options outside of the country.

The closure of DX.Exchange, even if only temporarily, does not bode well for the broader securitized tokens industry which was expected to mimic the initial coin offerings (ICOs) boom of 2017 that drove the cryptocurrency market through much of that year. Moreover, 2019 has so far seen the closure of notable crypto-exchanges such as Cryptopia, QuadrigaCX, and Koinex. In fact, a recent statistic suggested that the average life span of a crypto-exchange has now decreased to only 18 months. It seems that the market has yet to invent a decentralized crypto-exchange which is self-governed, compliant with regulations, and runs smoothly in a financially viable manner.

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