On Wednesday (25 July 2018), SharesPost, a leading provider of private company liquidity solutions and private capital markets research, announced via a press release that OKCoin had become the first crypto exchange to join its upcoming Global Liquidity And Settlement System (GLASS) network.
To understand the huge significance of this announcement, it is necessary to take a look at GLASS’ white paper.
Although 2017 was a great year for ICOs (with more than $5.4 billion raised) and 2018 is looking good so far (the project estimate for this year is around $12 billion), increasing scrutiny by financial regulators around the world, especially the U.S. Securities and Exchange Commission (SEC), which considers most ICOs to be securities, has put a dark cloud over the whole market.
Here are the two pain points that GLASS is trying to address:
- “First, many crypto trading platforms around the world struggle to generate enough liquidity to serve their local markets. Apart from the most frequently traded currencies and tokens, many exchanges have insufficient buy and/or sell side demand on their platforms to support an active market. This makes pricing discovery on any single exchange inefficient. Prices across platforms can vary significantly, creating arbitrage opportunities that undermine the efficiency and integrity of the market.”
- “Second, regulators in the United States and other key jurisdictions view tokens as securities and are regulating them as such. For example, the agencies require investors to trade security tokens only on regulated trading systems and exchanges. Existing trading platforms, most of which lack licenses in any jurisdiction, face a significant dilemma. If the platforms wish to trade tokens that regulators deem securities, they can either: (a) register as a broker-dealer in each country where they have a material numbers of users, (b) choose not to register, but risk regulatory enforcement and other legal action, or (c) shut down token trades in those countries. Each choice presents material problems for the platforms.”
SharesPost’s solution to these two problems is GLASS, a decentralized network that allows crypto exchanges to pool liquidity and/or settle compliant cross-border token trades. GLASS allows exchanges to “boost trading volumes without materially slowing transaction processing speeds by connecting with counterparties on other exchanges.” It also allows exchanges (“trade referrers”) to market to and serve customers in their own, or in foreign jurisdictions, tokens that might be considered securities even if these exchanges don’t have any kind of regulatory approval for selling securities, providing that there is a GLASS network member that has the necessary licenses to be able to act as the “settlement provider.” It is important to note that exchanges “may use GLASS’s liquidity pooling functions without using its settlement features and vice versa.”
Liquidity Pooling
- “To generate network effects, GLASS will enable each exchange member to access the liquidity of other participating member exchanges. Exchanges can choose to pool liquidity for a single token trading pair, a subset of their trading pairs or all of their trading pairs. This gives exchanges the flexibility to strategically decide which parts of their order book to share. For example, they may choose to withhold customer orders for trading pairs where they already have deep liquidity but submit client orders where they have insufficient liquidity to generate meaningful transaction volume.”
- “Customers enter orders on the member exchange’s website using the exchange’s existing interface. Branding and the customer relationship remain entirely with the exchange. The exchange charges its normal commissions and other fees to its clients in the same way it does on non-GLASS enabled transactions. Working only in the background, GLASS is largely invisible to the customers of the participating exchanges.”
- “For each trading pair, GLASS maintains a single master order book aggregating buy and sell orders from all exchanges pooling orders for that trading pair. The GLASS master order book is provided via a cross-chain sidechannel and replaces the exchange’s proprietary order book for the trading pair. Clients of participating exchanges viewing the master order book will thus see a much deeper market than they would if the exchange remained isolated. This will drive an increase in trading volume for each exchange and the network as a whole. This will make each of the participating exchanges more attractive to investors seeking a liquid market.”
Settlement Network
- “GLASS will be the first decentralized settlement network to ensure cross-border trades meet applicable regulations. By ensuring compliance regardless of where buyer, seller or the trading platform connecting them are resident and regardless of whether or not the token traded is a security, GLASS will solve the regulatory constraints currently threatening continued growth of the ICO and token trading ecosystem.”
- “Settlement Providers will be regulated entities (e.g., ATS, broker-dealers, Recognized Market Operators), at least one in each country, regulated to facilitate security token trades by residents in their jurisdiction. The SharesPost Marketplace [a SharesPost-owned SEC-regulated trading platform operating under an Alternative Trading System (ATS) license that was updated in May 2018 to allow the platform to trade crypto tokens, even those that the SEC might consider to be securities] will provide GLASS with immediate settlement capability in the United States. Once registrations are completed, SharesPost’s registered subsidiaries in Singapore and Dubai will follow further expanding the network’s regional coverage. Other non-SharesPost, regulated entities will be encouraged to jointhe network and become Settlement Providers in order to earn GLASS’s settlement fees.”
- “With GLASS, both SharesPost and OKCoin can serve expanded user bases and supported assets — particularly private growth equity assets, tokenized assets, and other emerging security products. As the network grows, OKCoin will also be able to offer their own compliant services in supported jurisdictions to other GLASS partners, and will be able to soon list security tokens in every major market globally.”
The GLASS Roadmap
- SharesPost MarketPlace is the first Settlement Provider in the GLASS network. This platform, which already exists, is currently being updated to support trading of digital assets. A beta launch is expected to take place in Q3 2018, with a full launch in Q4 2018.
- A beta launch of GLASS (with SharesPost Marketplace serving as the initial Settlement Providers in the U.S.) should be happening in Q3 2018, with the full launch of GLASS settlement functionality in Q4 2018, and the full launch of GLASS liquidity pooling functionality in Q3 2019.
Comments From SharesPost and OKCoin
Greg Brogger, the founder and CEO of SharesPost, stated:
“With the security token market poised to take off in 2018 and beyond, we’re thrilled to be partnering with OKCoin on the upcoming launch of GLASS. As one of the leading global digital asset exchanges, OKCoin will be an instrumental partner as we build a new, decentralized network that can facilitate the trading, certification, and custody of security tokens and tokenized assets in a streamlined, cost-efficient manner.”
As for Tim Byun, the CEO of OKCoin USA, which launched its platform on 13 July 2018 (offering fiat-to-crypto trading to U.S. investors, starting with those in California), he had this to say:
“The adoption of digital assets will continue to accelerate, and security tokens are going to play a major role in that growth in the years ahead… We’ve always focused on offering customers the broadest choice and a premier user experience. Partnering with SharesPost on GLASS is another opportunity that enables us to continue advancing our customer solution and philosophy on a global scale.”
Featured Image Credit: Image Courtesy of SharesPost