The NXT Asset exchange (AE) is a peer-to-peer client that allows users to issue and trade securities, denominated in NXT. Using proof-of-stake, instead of Bitcoin’s proof-of-work, NXT adopts a different model to secure the authenticity of its network.
Unlike stock markets that dominate current financial markets, NXT AE is decentralized because trades are cleared by nodes that run on computers worldwide. The Asset Exchange is censor resistant because a central entity is unable to freeze funds or halt trading.
What does this mean for Bitcoin? Since NXT is a cryptocurrency with little direct-to-fiat infrastructure, Bitcoin provides the “on-ramp” for users to participate in the NXT market. Demand for a politics-free security exchange has made the NXT market quite large. The projects are varied and the estimated market value of all the current listed projects is about $20 million.
NXT Asset Exchange is breaking down the traditional barriers of the investment banking industry. Traditional equity financing is expensive. Compliance costs are high. This makes it economically unviable to raise small amounts of funds using a platform like the New York Stock Exchange or Nasdaq.
Stock markets have been done before using digital currencies. Predecessors like the Global Bitcoin Stock Exchange, BTC-TC, and Bitfunder all pioneered the model of micro-IPO’s using Bitcoin as the underlying currency and settlement mechanism. However, these were all centralized exchanges and ultimately failed. The decentralized NXT model is putting into action what projects like Colored Coins and Bitshares have all strived to accomplish – but have never succeeded. NXTReporting.com, a site that publishes trading information about NXT assets, lists the previous 30-day volume of all assets at 39.5 million NXT – equivalent to $233,000 at current exchange rates.
One popular NXT asset models itself like a hedge fund. SuperNET has a market capitalization of $695,000. The fund currently holds 10 different cryptocurrencies and pays out dividends derived from holding the coins. According to the fund’s website, the criteria for cryptocurrencies to become part of the fund’s core is based on their technical innovation. Bitcoin is not held in the fund.
Liquid Technologies, trading as LQD on the NXT AE, has a market capitalization of 96 million NXT ($568,000). The business trades NXT pairs across many exchanges and scalps small profits by providing liquidity to the market. At a current price of 96 NXT/share the fund is trading at a premium to its Nov. 1, 2015 net asset value of 87 NXT/share. According to the balance sheet published on Liquid Technologies website, the fund may have substantial counterparty risk because of the assets it holds on the Cryptsy currency exchange.
A caveat to those who want to roll the dice: never invest more than you can lose. There is one certainty in the market for unregulated securities, likely failure. From Pirateat40 to Friedcat, and many in-between, there is no shortage of fraud in this space. However, if due diligence is properly conducted and a business plan looks legitimate, the sky is the limit.
What do you think about the NXT Asset Exchange? Let us know in the comments below!
Images courtesy of NXT, cryptocoin.cc