Future of Finance


INX security token issue and investments are driving tokenised securities markets towards lift-off 

INX security token issue and investments are driving tokenised securities markets towards lift-off 

New York-based INX Limited shot to prominence last year when it raised US$85 million in an initial public offering (IPO) that was not only tokenised but, because it was fully registered with the Securities and Exchange Commission (SEC), open to all kinds of investors. This broke with the established pattern of issuing security tokens to sophisticated investors only, placing INX in the vanguard of the burgeoning tokenisation industry. The company is already developing plans to tokenise OTC-traded companies, real estate, intellectual property and a variety of other asset classes on to its blockchain-based automated trading system (ATS). The company also operates a cryptocurrency trading platform and has acquired both a digital asset broker-dealing business and an inter-dealer broker. Future of Finance co-founder Dominic Hobson spoke to Douglas Borthwick, Chief Business Officer at INX. 

Questions that are being asked

  1. INX. has raised $85 million, 87% of it via a full, SEC-registered security token offering on an Ethereum blockchain network at US90c a token last summer, as opposed to going down the Reg D or Reg S route other token issuers have chosen. What was the logic and what is the advantage?
  2. 950 days … How difficult was it to do a fully public issue in terms of educating regulators, and time and money invested?
  3. Investors could subscribe using Bitcoin, Ether and USDC as well as fiat currency once you’d raised US$7.5 million. What was the balance between fiat and crypto-currency in the end?
  4. Did the SEC have a view on crypto-currency subscriptions?
  5. Has INX. continued to hold crypto-currency as capital or swapped into fiat currency?
  6. How successful was the STO in terms of target amount, investor numbers and types, and the trading of the stock since the STO?
  7. What benefits do token-holders receive in terms of income?
  8. Investors can use their tokens to get discounts on trading on INX How do they claim the discounts?
  9. Where can token-holders sell their tokens?
  10. Last year you bought a regulated broker-dealing business (Openfinance). What did the acquisition add?
  11. This year you bought an inter-dealer broker (ILS Brokers). What did the acquisition add?
  12. The company’s initial target was trading of crypto-currencies, and presumably crypto-currencies still account for the bulk of your revenues. Were security tokens always part of the plan?
  13. INX chose Gibraltar when it started in 2017. What was the attraction of Gibraltar then – and has the attraction increased since?
  14. Has the STO made it easier to recruit potential security token issuers?
  15. You have identified privately traded OTC issuers (the Pink Sheets market) as ripe for tokenization. Why does tokenization appeal to them (e. g. it ends shorting and pumping-and-dumping, tokens trade 24/7/365)?
  16. How big is the OTC market?
  17. How long does it take to tokenize an OTC stock?
  18. Do you expect tokenization to spread to exchange-listed stocks as well?
  19. Are the corporate bond markets a target for INX?
  20. You have established a partnership with the Intangible Properties Exchange (IPEX) platform that aims to tokenize the intellectual property owned by companies that currently just sits on the balance sheet, such as trademarks, copyrights and patents. Since you are both trading platforms, how does the relationship with IPEX work?
  21. Are privately managed equity and debt issues ripe for tokenization?
  22. What other asset classes are you helping to tokenize (e. g. real estate, commodities, collectibles, fine art)?
  23. Are the mutual fund (or ETF) markets interesting to you as tokenization targets?
  24. Are you interested in attracting international issuers – and are you attracting applicants from (non-blacklisted) jurisdictions?
  25. INX does not offer a digital wallet of its own but directs investors to MetaMask, MyEtherWallet, Anchorage, Bitgo and Hex. Do you rely on them to complete KYC, AML, CFT and sanctions screening checks?
  26. Can investors use their own digital wallets provided they are ERC20 compliant?
  27. You banned the use of wallets held at crypto-currency exchanges. Was that a regulatory proscription?
  28. Can investors subscribe for other token issues using crypto-currency or must it be fiat currency only – or is that simply a decision of the issuer?
  29. Is your investor business primarily institutional or retail or both?
  30. Does the balance between institutional and retail vary between asset classes (tokens versus crypto-currencies)?
  31. It tends to be easier to find issuers than to find investors in tokens. What are you doing to attract investors?
  32. Do you believe tokenization can of itself add liquidity – or do you need market-makers and/or lead brokers?
  33. Do you believe tokenization broadens the investor base (e. g. through technology that allows fractionalization to be economic down to very small pieces – you had a minimum investment threshold of US$1,000 in your own STO)?
  34. Are you interested in attracting international investors – and are you attracting applicants from (non-blacklisted) jurisdictions?
  35. Is INX providing all functions – issuance into wallets, trading between wallets, safekeeping in wallets, settlement between wallets, payment of entitlements into wallets – to issuers and investors?
  36. If so, do you believe integrating all functions creates conflicts of interest?
  37. How does INX get paid for what it does (e. g. ad valorem or fixed fees on trades)?
  38. How does the cost of capital compare with conventional securities markets?
  39. How does the cost of trading compare with conventional securities markets?
  40. What does the future hold for conventional stock exchanges such as Nasdaq and the NYSE?
  41. What does the future hold for a central securities depository such as the DTCC? Are its functions (issuance, registration, settlement) redundant in a tokenized marketplace?
  42. What does the future hold for custodian banks – do they have a role to play in tokenized markets?
  43. Do you believe that, over time, the public as well as private securities markets will all migrate, in toto, to tokenization platforms?