Sufficiently permissioned DEX for securities

Decentralized exchanges remove brokers, market makers, and clearing houses. Users fund liquidity pools because they have an economic incentive to do so. While this creates strong network effects, and decreases transaction costs by removing intermediaries, it prevents institutional capital from participating. Most of the world's capital is institutional capital.

All DEXs today are forex markets. They enable swapping of currencies and commodities. As crypto companies adopt securities regulation, the industry will need decentralized exchanges that enable trading of securities and their derivatives.

A sufficiently permissioned platform sets the rules of engagement while not being able to control them.

Spectrum of exchanges, from centralized to decentralized

1. A DEX for securities would set the rules of engagement:

  • Only registered instruments can be listed
  • KYC needed to trade
  • AML to protect transactions
  • No funds held by a central party

2. Without controlling what participants with completed KYC do with their money:

  • Trade or fund liquidity pools
  • Can launch regulated instruments
  • Can create regulated derivatives
  • Complete transparency of relevant transactions