SME stock exchange and crowdfunding platform NPEX announced a partnership with DUSK, the permissionless blockchain network designed to support security tokens. Together they plan to launch a stock exchange powered by DUSK DLT. They also intend to apply for entry into the DLT Pilot Regime, the EU’s program that relaxes a limited number of regulations.
The Regime allows multilateral trading facilities (MTFs) such as NPEX to also take on the post trade settlement role. That’s usually performed by a central securities depository (CSD). For example, the main NPEX exchange uses Euroclear for post trade. To date NPEX has enabled SME funding to the tune of €185 million across 97 financings.
A DLT based stock exchange allows easier voting and lower cost dividend administration. The fractionalization benefit of tokenization offers a less clear advantage when investing in SMEs.
One thing not highlighted in the announcement is that Dusk invested in NPEX in 2020. However, NPEX’s website mentions it as part of its history.
“Partnering with NPEX to create the first DLT-powered stock exchange is a major milestone for Dusk,” said Emanuele Francioni, CEO of Dusk. “Our expertise in DLT, combined with NPEX’s market knowledge, will set a new standard for secure and transparent financial solutions that meet the demands of today’s dynamic market.”
Is it the first DLT-powered stock exchange? The SIX Digital Exchange (SDX) can make that claim. However, SDX’s assets and central securities depository are DLT-based. Trading is more conventional and is open during limited hours. It remains to be seen whether the NPEX DLT exchange will be different.
Dusk blockchain
While the topic of real world asset (RWA) tokenization is currently heavily hyped in the permissionless blockchain sector, Dusk defined compliant tokenization as its objective when it launched its whitepaper in 2021. Its blockchain technology isn’t a clone of Ethereum and is custom in many ways. It has privacy preserving transaction models, confidential smart contracts (XSC) and confidential security tokens. Transactions are final in less than ten seconds compared to more than ten minutes for Ethereum.
Meanwhile, the DLT Pilot Regime is proving more popular with startups than incumbents. Instead, many traditional institutions want to explore tokenization opportunities as part of the ECB’s DLT wholesale settlement trials. As previously noted by the larger players, some of the limits in the DLT Pilot Regime are too small for big players to justify the investment. A Deutsche Börse executive compared it to asking an aircraft carrier to adapt to support landing Cessnas, and only for a handful of trips.
