Rosario Ingargiola, founder and chief executive of decentralized financial market infrastructure company Bosonic, said the biggest opportunity in digital assets is around new types of tokenization, which is where large financial institutions are focusing their efforts. 

In April this year FINRA, the US regulator, approved Bosonic Securities to operate a broker-dealer and an SEC registered Alternative Trading System (ATS) for equity and debt securities, including digital asset securities that use blockchain technology.

Bosonic Securities, LLC, was recently approved by the Financial Industry Regulatory Authority (FINRA) to operate a broker-dealer and an Alternative Trading System (ATS) for equity and debt securities, including digital asset securities.https://t.co/8Qv5hyju6N pic.twitter.com/j8gR85XRjK

— BOSONIC (@bosonic_digital) May 11, 2023

Ingargiola told Markets Media: “The rhetoric is crypto firms cannot get registered but this is not true as we are sitting here with an approved license.”

He believes all the money is going to be made on tokenizing real world assets and existing non-native digital securities. 

“At some point there will be much more comfort around issuing native digital securities on a public blockchain and that will become the norm,” he added. 

Bosonic Securities is asset agnostic and can handle tokenized versions of traditional securities, including equities and fixed income, as well as tokenized real assets and digitally native securities. The regulatory approval allows Bosonic Securities to tokenize any asset sitting on the books of a custodian, central securities depository or transfer agent in the firm’s private permissioned blockchain network, which clients can then trade or use as collateral.

The venue’s license is based on the SEC’s ‘Three-Step Process’ for operating an ATS that trades digital asset securities. The first step is for the buyer and seller to send their respective orders to the ATS, and then to instruct their respective custodians to settle transactions when the ATS notifies them of a match. Once the ATS matches the orders the final step is for the venue to notify the counterparties and their respective custodians, who carry out the conditional instructions. 

“Under Step 3 custodians perform net settlement which ties in very nicely with our technology,” added Ingargiola.

Bosonic licenses a blockchain ledger system to custodians so they have the tools to calculate net settlement and automate settlement movements. Once assets are tokenized and on a ledger, they are visible to trading counterparties in the network for all downstream applications that the Bosonic Network provides including real-time peer-to-peer trading that self-clears and settles at the custodial level. Once custodians have tokenized assets onto a blockchain they can transact atomic swaps or an atomic exchange of value in real time with cryptographic proof of the change of ownership on-chain. 

Therefore, it is possible for clients to access global liquidity in the aggregate from their own account at their own custodian without counterparty risk or use of bilateral credit or a central counterparty such as a traditional clearinghouse. In a similar fashion the Bosonic Securities ATS can aggregate liquidity as it can transact any security, even if it is listed on another ATS, as long as it can route to the listing venue. 

“Our clearing and settlement technology allows us to bridge together multiple sources of liquidity in a regulatory compliant way,” added Ingargiola. 

In December last year Bosonic launched its Cross Custodian Net Settlement (CCNS) network in which trades digital assets are executed, cleared, and settled atomically between two digital asset custodians, with initial testing between First Digital in Hong Kong and Propine in Singapore. Custodians load digital assets that need to be physically delivered between custodians in a CCNS smart contract on Layer-1 public blockchain protocols which eliminates counterparty credit and settlement risk, and reduces intraday exposures.

Ingargiola said: “We have a number of banks in our CCNS working group who are working on the tokenization of real-world assets and existing non-native digital securities.”

Remediation 

One of the challenges of growing the tokenization business is how to turn existing tokens into legally issued securities. Ingargiola explained that Bosonic has a token remediation plan. 

“We are planning to seek a No Action letter from the SEC to allow issuers to be able to choose to become US compliant,” he added. “Hopefully, they would be granted amnesty and given the ability to replace existing tokens with properly registered securities.”

For example, anybody holding a token could use an issuer-provided smart contract to reissue a previously unregistered digital asset as a registered security by adding metadata that tags the token as part of the regulated offering.  The legal costs and the reporting requirements are actually quite modest because there are provisions for registrations by smaller companies under the Jobs Act, according to Ingargiola.

“There is a very clear path to creating a registered securities offering that is not at all unreasonable in terms of the burden, and which represents the only sensible approach to remedying the situation,” added Ingargiola. 

In addition, regulatory guidance and clarity will be needed in the future around tokens that are initially capital-raising vehicles but then change into commodity or utility tokens according to Ingargiola. Bosonic would be able to list and trade any security that is part of a regulated offering, and it believes that outside of the BD/ATS it could facilitate trading in commodity tokens between Eligible Contract Participants (ECPs), which are essentially institutional traders, as it does today for BTC.

Ingargiola stressed: “The remediation plan is by no means approved or vetted by any regulatory authority but an idea we have around a path forward for already issued tokens to be able to become compliant in the United States.”

EDX Markets 

Another sign of the demand from institutions for a safe, regulated route into cryptocurrencies is the launch of venue EDX Markets, which is backed by a consortium of broker-dealers, global market makers and venture capital firms.

EDXM said it will aggregate liquidity from multiple market makers to reduce spreads and improve transparency using proven technology from US exchange group MEMX together with best practices from traditional financial. Initial backers include Charles Schwab, Citadel Securities, Fidelity Digital Asset, Paradigm, Sequoia Capital and Virtu Financial. Additional market participants are expected to partner with EDXM over time.

Jamil Nazarali, formerly global head of business development at Citadel Securities, is chief executive of EDXM. 

“Customer security and regulatory compliance are also core foundational principles for EDXM,” said the exchange. “In particular, it will remove significant conflicts of interest that affect existing cryptocurrency exchanges by separating responsibility for operating the exchange from the entities trading on it.”

BlackRock Bitcoin ETF filing 

In addition, BlackRock, the world’s largest asset manager, has filed with the SEC for a spot bitcoin exchange-traded fund, which the regulator has never approved despite a number of filings from other managers. 

K33 Research said in a report: “Filings of U.S. BTC spot ETFs have been plentiful since 2013, and all have been denied. However, never has a company of the degree of BlackRock made such a step, leading an optimistic sentiment to erupt in the market.”

The Blackrock ETF filing
– Why file now?
– ETF timeline
– Probability of approval
– Potential implications

We touch on all these subjects in our latest article on K33 Research. https://t.co/G5GARNNz1D

— K33 Research (@K33Research) June 21, 2023

The research report continued that BlackRock intends to use Coinbase as a custodian while teaming up with Nasdaq in a surveillance-sharing agreement with an unnamed crypto exchange. 

“BlackRock also has a remarkable approval track record for its ETF filings, having seen 575 out of 576 ETF filings being approved,” added K33 Research. “An approval would profoundly impact the market structure of bitcoin, as it would reduce the barriers for financial advisors to offer exposure to BTC through an accessible investment vehicle with daily creations and redemptions delivered by a trusted issuer.”

If BlackRock’s ETF is approved, it could launch in the first quarter of 2024 according to K33 Research. 

UPDATE: Hearing/expecting another 5-6 entrants into the spot #bitcoin ETF fray over the next few weeks.

**the rush will remain fast and furious.

**it’s also expected that follow up leveraged #bitcoin futures ETF’s will hit the tape as well, over the second half of the year.

— Andrew (@AP_Abacus) June 22, 2023