Our experts tell us what we need to know about the new EDX exchange for institutional investors with support from Fidelity and Charles Schwab
A new crypto exchange, EDX, started operating in the U.S. It is backed by such well-known players in the market of traditional finance as Citadel Securities, Fidelity and Charles Schwab. This development could change the digital asset landscape amid increased U.S. attention to the sector.
According to the press release, EDX was launched to “meet the needs of the world’s largest and most advanced financial institutions.” And many of which are still interested in cryptocurrencies. But they are skeptical of existing platforms, also because of the regulatory uncertainty they now find themselves in. The launch of the site coincided with a surge in Bitcoin. It was just after news of an application for a Bitcoin ETF by BlackRock.
The EDX Markets exchange for institutional investors only was first announced in September 2022. In addition to Bitcoin, the exchange allows trading in three other cryptocurrencies – Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BCH). None of them were equated with securities in the sensational lawsuits from the SEC against major cryptocurrency exchanges Binance and Coinbase.
Unlike existing crypto platforms, EDX offers a so-called non-custodial model. And that means it won’t store customers’ digital assets during trading. Instead, EDX works with a third-party custodian. According to EDX Markets CEO Jamil Nazarali, the expectation of regulators. That crypto exchanges should be separated from broker-dealer functions, similar to the structure of traditional financial markets, will create opportunities for EDX.
The first capital to develop the exchange came from venture capital firms Paradigm, Sequoia Capital and Virtu Financial. By the time of launch, EDX had raised additional funding from new investors, including Miami International Holdings, GTS, GSR Markets and HRT Technology. At the end of the year, the company plans to launch its own EDX Clearing service for trades on the exchange.
The Sequoia portfolio also includes other major cryptoservices. The company has invested, for example, in projects such as Filecoiln and LayerZero. Paradigm focuses exclusively on the crypto market and has supported dozens of blockchain startups, including Uniswap, OpenSea, Synthetix, Starkware, Phantom, Optimism, dYdX, Blur and others.
The traditional market enters the cryptocurrency market
EDX customers will still be able to trade the four cryptocurrencies almost around the clock. But the site will share the functions of broker, dealer and exchange.
Many potential crypto investors are still interested in this area. But they are wary of the inherent volatility of the crypto market. Taking the example of the traditional stock market. And now EDX wants to attract these risk-averse customers. The exchange is aimed primarily at large investors. As well as those investors who are put off by the regulatory uncertainty and instability of the crypto industry.
Instead of retail investors trading cryptocurrencies directly through the EDX platform. And as is the case with other exchanges, they will interact with intermediaries. A similar approach is taken, for example, in stock trading on the New York Stock Exchange (NYSE). The reliability of such intermediaries is also an argument for potential clients.
“There’s no way someone trading through a reliable intermediary will lose a hard drive with $200 million worth of cryptocurrency keys and then spend years looking for it in a landfill,” says Jamila Nazarali, CEO of EDX Markets. And recalling that such cases did occur.
Our experts point out that the site will also provide clients with access to more favorable prices through transactions with special quotes for retail-only quotes. Because institutional traders often buy the asset in large quantities. Their transactions often lead to an increase in the price of such an asset, which leads to losses for market makers. To minimize this, the platforms can set inflated commissions. And which will be strongly felt for retail traders who trade in much smaller volumes. By isolating retail trading, EDX can offer clients better prices for small trades.