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In a landmark development, 21X has become the first financial market infrastructure (FMI) to receive a DLT Pilot Regime license from Germany’s BaFin regulator. This license, granted under the European Union’s Distributed Ledger Technology (DLT) Pilot Regime introduced in March 2023, allows 21X to launch a regulated exchange and settlement system on a permissionless blockchain. The launch is set for Q1 2025.
The license, which took 18 months to secure, involved collaboration with BaFin, the European Securities and Markets Authority (ESMA), and the European Central Bank (ECB). It enables 21X to deliver innovative blockchain-based trading and settlement infrastructure, starting with tokenized money market funds. Future plans include tokenized equity, bonds, funds, ETFs, and real estate.
Revolutionizing Capital Markets with DLT
The DLT Pilot Regime introduces several novel features. 21X’s exchange will operate on Polygon POS, a permissionless blockchain, eliminating the need for traditional exchanges and central securities depositories (CSDs). Instead, a single smart contract will facilitate trade confirmation and the atomic exchange of tokenized securities for stablecoins.
“We’re moving beyond T+1 settlement seen in markets like the U.S.,” said Severin Krantz, Head of Business Development at 21X. “This is not just T+0; we’re enabling settlement within seconds using tokenized securities and regulated stablecoins.”
Additionally, the license allows shareholder registries to be held entirely on-chain, bypassing conventional CSDs. Unlike existing digital securities that often act as “digital twins” of physical assets, 21X aims to achieve native tokenization for greater efficiency.
Through the DLT Pilot Regime, 21X can directly engage with retail investors who meet KYC and AML requirements, granting them access to a whitelist of participants. Institutional clients, brokers, and corporate treasuries will also be integrated. Investors can opt for self-custody of their assets, further enhancing control and security.
Advanced On-Chain Market Infrastructure
Unlike traditional automated market makers (AMMs), 21X’s platform employs a central limit order book (CLOB)for trading tokenized assets against regulated stablecoins. The firm has partnered with two stablecoin providers:
- AllUnity, co-founded by Deutsche Bank’s DWS, with Alexander Höptner, 21X’s chairman, serving as its CEO.
- Membrane Finance, a Paxos-acquired EU issuer.
This dual-partnership ensures robust stablecoin support for trading and settlement.
A Global First for Tokenized Securities
“This isn’t just a license—it’s a revolutionary moment for capital markets,” said Max Heinzle, CEO of 21X. “For the first time, institutional and retail investors can trade tokenized securities on a fully regulated, blockchain-based exchange with the same compliance and security standards as traditional markets.”
He praised EU and German regulators for their visionary approach, adding that the license validates the potential of permissionless blockchains to host regulated securities safely.
While other platforms like Switzerland’s SDX and Singapore’s ADDX exist, 21X’s offering is unique. It combines a permissionless blockchain with a unified license for trading and settlement and recognizes DLT-based registries while granting retail access. SDX and ADDX operate on permissioned chains and do not offer the same level of flexibility or direct retail participation.
Polygon POS and Multichain Redundancy
21X selected Polygon POS as its initial blockchain due to its popularity for security token issuances in Germany, supported by favorable regulations for electronic securities. However, secondary markets often face hurdles due to EU mandates for separate CSDs, a challenge addressed by the DLT Pilot Regime.
To mitigate risks associated with permissionless chains, 21X has adopted a multichain strategy. This approach allows for asset migration to alternative chains in emergencies, ensuring operational redundancy and regulatory compliance.
Pioneering the Future of Capital Markets
With its innovative approach, 21X is poised to demonstrate the viability of regulated securities on permissionless blockchains. “We’re not just building an exchange,” said Heinzle, “We’re building the future infrastructure for capital markets on-chain.”
This milestone solidifies 21X’s role as a trailblazer in the evolution of blockchain technology for financial markets, bridging the gap between traditional finance and the decentralized future.
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