Digital currency platform 21X secures first authorization for trade and settlement using distributed ledger technology within the DLT Pilot Regime.

Digital currency platform 21X secures first authorization for trade and settlement using distributed ledger technology within the DLT Pilot Regime.

21X Secures Groundbreaking License for Regulated Crypto-Asset Exchange on Permissionless Blockchain

The European Union has made a significant stride in the adoption of blockchain technology with the awarding of the DLT Pilot Regime license to 21X, a Berlin-based company. This license allows 21X to operate a regulated trading venue for crypto-assets on a permissionless blockchain, marking a pivotal moment in bridging traditional finance with decentralized technology.

Details of the DLT Pilot Regime License for 21X

Under the EU's temporary pilot regime for Distributed Ledger Technology (DLT) market infrastructures, introduced through Regulation (EU) 2023/1114, 21X has been authorized to onboard users, facilitate trading, clear trades, and provide settlement services on a permissionless blockchain. This makes 21X one of the first companies to build an exchange that combines a permissionless blockchain, a single license for trading and settlement, and recognition of DLT as the registry, enabling retail investor access.

The license imposes certain compliance, reporting, and operational requirements, but within a tailored pilot regime designed to accommodate innovative technology. 21X is subject to oversight by a designated EU regulatory authority, which will monitor compliance with the rules of the Pilot Regime.

Implications of the License

1. Innovation in Regulated Markets: The license demonstrates regulatory acceptance of permissionless blockchains as a viable infrastructure for regulated market activities. It supports the development of more decentralized financial ecosystems with regulatory safeguards.
2. Market Integrity and Investor Protection: By operating under a licensed regulatory framework, 21X must adhere to standards that protect investors and ensure the orderly functioning of the market.
3. Precedent for Future Regulation: The license sets a precedent for further adoption and regulation of DLT-based markets within the EU. Insights from pilot projects like 21X will inform the design of permanent DLT market infrastructure regulations in the Digital Finance Package.
4. Increased Trust and Adoption: The establishment of regulatory oversight boosts institutional and retail trust in crypto trading venues, potentially accelerating mainstream adoption of crypto-assets and blockchain-based financial services in Europe.
5. Challenges and Risks: Managing the tension between permissionless blockchain features and regulatory demands presents operational complexities unique to permissionless environments. Navigating these challenges while ensuring compliance is crucial for the success of such projects.

Additional Information

• 21X has partnered with Singapore-based SBI Digital Markets and fund administrator Apex.
• The company has a multi-chain strategy to provide redundancy in case of issues with the permissionless chain.
• Other digital exchanges, such as SDX and ADDX, operate on permissioned chains and have different operational characteristics compared to 21X's exchange.
• The license for this system was awarded by German regulator BaFin under the DLT Pilot Regime.
• Going forward, 21X is eyeing digital equity, bonds, funds, ETFs, and even real estate. The first security to be traded will likely be a tokenized money market fund.
• Switzerland has a licensing regime that supports both trading and settlement, but there are currently no license holders.
• 21X runs a central limit order book (CLOB) on-chain for trading and settlement, not an automated market maker (AMM).
• The exchange will replace a conventional exchange and central securities depository (CSD) with a single smart contract for trade confirmation and security exchange.
• This is the first trading and settlement system license awarded since the EU's DLT Pilot Regime came into force in March 2023.

1. This groundbreaking license granted to 21X by the European Union marks a turning point in the retail sector, as it allows them to establish a regulated crypto-asset exchange on a permissionless blockchain.
2. The permit under the EU's DLT Pilot Regime enables 21X to offer services such as user onboarding, trade facilitation, clearing, and settlement, all on a permissionless blockchain.
3. With this approval, 21X becomes one of the first companies to create an exchange combining a permissionless blockchain, a single license for trading and settlement, and DLT as the registry, opening the door for retail investors.
4. The new license imposes certain compliance, reporting, and operational requirements on 21X, but it operates within a customized pilot regime designed to accommodate innovative technology.
5. This development signifies significant potential for the finance industry, as it demonstrates regulatory acceptance of permissionless blockchains and bolsters the growth of more decentralized financial ecosystems with built-in safeguards.
6. As 21X eyes digital equity, bonds, funds, ETFs, and even real estate for trading, the deployment of stablecoins and tokenization deepens the connection between traditional finance, business, and technology.

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