STX.Swiss aspires to be a regulatory compliant decentralized exchange for security tokens – but can a security token exchange be “truly” decentralized?

The build-up of security token trading infrastructure in Switzerland continues. While Switzerland’s leading stock exchange SIX has delayed its token trading platform SDX, others are forging ahead. Now STX.Swiss has launched, a decentralized exchange for security tokens and STOs.

A frontend for Uniswap with zero additional fees

STX originated from the HackerOne bug bounty. HackerOne is a cybersecurity firm started by hackers and security leaders who aspire to build a more secure internet. 

At its core, STX is a non-custodial peer-to-peer exchange for security tokens and STOs built on the Ethereum blockchain. It interacts with Uniswap, a protocol that is designed to facilitate automatic digital asset exchange between ETH and ERC20 tokens.

Unlike centralized exchanges that maintain an order book to match buyers and sellers, Uniswap uses liquidity reserves to facilitates the exchange of digital assets, eliminating the centralized order book. All trades happen directly on-chain.

STX charges no listing fees, no trading fees, and no investor onboarding fees. Thus, the exchange can be thought of as a frontend for Uniswap without any additional fees.

At least for now. The STX team also revealed they are currently implementing other features such as buy and sell limit orders and stop-loss orders, making the exchange a more complete trading platform.

IMMO to become first listed security token

The platform has listed three tokens so far: DAI, Maker, and XCHF. None of those are security tokens, which isn’t surprising – there not many tradable security tokens in the market yet.

Shortly, STX will also list the IMMO token, the security token of Switzerland-based firm Blockimmo, which is backed by an equity participation certificate.

Blockimmo is a property transaction platform that has recently closed thefirst ever blockchain-based real estate transaction in Switzerland. Michael Dietz, who is one of the chief developers at STX, is also a Lead Developer at blockimmo, which highlights the connection between the two firms.

To trade DAI, Maker of XCHF, users don’t have to jump through any KYC or AML hoops. Anyone with an Ethereum wallet can immediately start trading. However, when trading a regulated security token like IMMO, the full swing of KYC and AML requirements will apply.

Controversy: Can a truly decentralized exchange work for security tokens?

A decentralized exchange is a practical manifestation of an ideological argument: Proponents argue that blockchain is being used to democratize markets, meaning individuals should also be able to freely trade on exchanges with other peers at will. Thus, the core idea of a “truly” decentralized exchange goes beyond simply erasing a centralized order book.

KYC and AML checks force exchanges to identify users and create centralized records of personal data. Moreover, a decentralized exchange should not allow the conversion to fiat currencies, as this would introduce yet another centralized element. Hence, the idea of a “regulatory compliant decentralized exchange” is somewhat an oxymoron.

A “truly” decentralized exchange will hardly work in the security token space. Even in the world of unregulated utility tokens, decentralized exchanges make only a small fraction of international trading volumes. For good reasons: Most traders, and in particular institutional investors, prefer regulated and licensed exchanges with the backing of a reputable company. Decentralized exchanges will therefore remain a niche phenomenon, and they certainly won’t gain considerable traction in the security token space.

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