Welcome as always to this week’s review. It’s great to see everyone enjoying all the content and we look forward to your continued thoughts and feedback. This week we’ll be taking a small step out of the defi space we’ve covered in the last few issues and look at the very ambitious Liechtenstein Cryptoassets Exchange.
The Liechtenstein Cryptoassets Exchange (LCX) goal is to become one of the world’s first licensed and supervised security token exchanges as a regulated marketplace for digital assets. This initial idea was born by LCX founder Monty Metzger who while evangelizing globally since 2013 about the impacts of blockchain technology. Found himself frustrated with the lack of regulatory framework and institutional platforms available. Not allowing him and his venture capital fund Digital Leaders Ventures to take part and invest in this new technology he wrote down the basic idea on a napkin in 2017 and began building what is now the Liechtenstein Cryptoassets Exchange. As a registered fintech company since 2018, LCX is focused on helping both traditional and current blockchain market participants make the most out of opportunities arising from the growth of cryptocurrencies and tokenized assets.
The first product launched is the LCX Terminal, an advanced crypto trading desk to trade on all major crypto exchanges within a single interface. Like what you’d expect from tradingview and most other trading dashboards built around API keys. But, LCX terminal offers a rather fresh new take to existing trading desk software. With an easy to use interface, it allows for managing your complete crypto assets trading lifecycle across many platforms with ease. LCX has also integrated some newer functions we’re not used to seeing either. Aiming to further simplify the digital asset management experience for crypto traders, and other asset managers by providing ultra-low latency and high throughput with a full range of routing functionality based on the best available options like. Best bid/Best ask; which analyzes and trades at the best price for each trading pair in real-time. Arbitrage Trading; to leverage those arbitrage opportunities across many exchanges in real-time. Automated Smart Order Execution; allowing users to create automated strategies for simultaneous and sequential order book routing. The terminal also has a few fun features like trading competitions, leaderboards, and prize pools. There are both free and paid plans available, with the primary difference between the two is that the free plans allow for three exchange connections and paid allows up to fifteen for $290 USD per month. The platforms currently available are Kraken, Bitfinex, Coinbase Pro, OKEX, Kucoin, Binance, Bittrex, Gemini, Huobi Global, HitBTC, Gate.io, Liquid, Digifinex, and Poloniex.
LCX has also been working on a compliant security token platform for issuing, storing, and trading cryptocurrencies, tokenized securities, and digital assets. This would allow for users to manage assets across fiat gateways and issue them. A decentralized compliance protocol aka “The Liechtenstein Protocol” will work to standardize the way security tokens are issued and traded on the blockchain. An institutional-grade custodian vault will allow multi-signature control with programmable governance secured by hardware security modules all within a full suite LCX Exchange and LCX Bank. A big part of LCX’s long-term vision is to become a blockchain bank with a full bank license focused on corporate banking.
LCX launched an Initial Exchange Offering (IEO) of the LCX Token with the global cryptocurrency platform Liquid.com. The IEO started on September 13th, 2019 at $0.06cents USD and ran for ten days with tokens starting to be distributed that following October. Of the 956’682’375 LCX total supply,10.5% is in company reserves, 8.4% is allocated for future release, 16.7% for the team, 11% for development, and with 4.6% set aside for the ecosystem that leaves 48.8% of the total supply currently circulating on the open market. However, the LCX token contract was created previously in March 2019 as part of the initial TGE. The LCX Company Reserve has a full lockup of 3 years, while the LCX team and advisor tokens are vested over a period of 36 months on a monthly basis. The IEO did not sell out and all unsold tokens were burned in December 2019, though there are no available details on the specifics of the IEO due to confidentiality agreements between Liquid and LCX; the December 2019 token burn is public record.
Created as a standard Ethereum ERC-20 utility token, the token is used in LCX’s blockchain ecosystem to pay fees associated with the services offered by LCX AG, such as LCX Terminal subscription, exchange transaction fees, and any other fees within the LCX ecosystem. As LCX will be accumulating LCX Tokens over time, it will put in place a transparent and verifiable mechanism to burn LCX to reduce the supply of tokens in the ecosystem. LCX will burn 100% of all “used” LCX Tokens, which LCX receives in the payment process of the utility token. LCX will burn these tokens on a quarterly basis and publish the number of tokens burned. As a result, the supply of LCX will decrease over time as the activity on LCX increases. As per the token economics outline, this is subject to further amendments after one year. Similar to how SALT lending platform operates with a minimum token value within its ecosystem, no matter the market conditions. All LCX tokens will never have a value lower than $0.10 USD when used to pay for subscriptions and fees on the LCX platform.
The LCX team is headed by founder and CEO Monty Metzger who has a tremendous amount of experience in the regulatory financial sector as a member of the world economic forum and founding partner of Digital Leaders Ventures. Backing him up is Director of Product Management Amanjot Malhotra with experience in founding two successful startups, Lead Engineer Anurag Verma has been developing blockchain products going on four years, Divij Sood brings his experiences in marketing as the projects Digital Marketing Manager, Lead Frontend Developer Varun Dev plays to his previous experiences as well as Software Engineer Kavi Pal. Yeshu Agarwal served as the project’s original CTO, but after building out the initial terminal product does not appear to be part of the team any longer. But, according to the project’s website, they’re currently not looking to fill any open positions.
The Liechtenstein Cryptoassets Exchange is partnered with many blockchain development arms such as Animoca Brands, Blockchain Research Institute, FinTank Incubator, Global Digital Finance, JUN Capital Partners, Ledger, Liquid, LunarCRUSH, Security Token Alliance, ZenGo and World Economic Forum. In Sept 2019 LCX announced that it had entered a partnership with Dr. Wesley Snipes to tokenize a $25 Million USD movie fund, investing in upcoming motion picture and television shows produced by the actor and his production studio Maandi House. With the goal to launch a fully regulated tokenized security via LCX’s platform and Liechtenstein based blockchain infrastructure in order to allow movie enthusiasts to invest alongside Hollywood icons and producers for the first time ever.
Liechtenstein is a leader in welcoming crypto companies alongside competitors like Singapore and Malta. Several such companies have even moved to Liechtenstein from neighboring Switzerland. As with the approved passing of the Act on Tokens and Entities Providing Services Based on Trusted Technologies (TVTG), also referred to as the (Blockchain Act) by the Parliament of Liechtenstein and effective January 1st, 2020. This already tells us that LCX is in the right place to set the goals they have. Being a member of the World Economic Forum and named as “Blockchain Pioneer” by the Blockchain Research Institute is important to note because it’s no easy feat to impress the Toronto based research group and be given the pioneer title or be invited on as a part of the WEF. By doing so this enables the LCX team access to a very large network of institutional players that include the NasDaq, Pepsico, PNCBank, Philip Morris, Polymath, IBM, Cisco, Microsoft, and many others. This position may afford the project the exact help it needs to become the first blockchain platform to have a full banking license. Giving the project an extreme advantage over every other platform in the space at the moment.
As discussed in my last review, token metrics are important for a healthy and sustainable ecosystem. While I wish I could say that my only concern is the team’s allocation of 16.7%, it’s much more than that. Currently, I found that the top 10 richest addresses control around 60% of the total supply; the top 20 control over 75%; and the top 100 control almost 96% of the total LCX supply. But, it must be noted that the 1st and 2nd richest addresses are locked and hold 180mn LCX between them, with a vesting period of 3 years. This is a huge discrepancy of distribution and means that the token itself is controlled and influenced by a very select few parties.
Another concern is a bit of a double edged sword. While I can see the team is working hard to get the appropriate banking licenses moving forward and updating us every step of the way on their regulatory process. The Financial Market Authority Liechtenstein (FMA) points out that LCX AG has not been licensed by the FMA, and so the operator of the website www.lcx.com is not allowed to provide any financial services that are subject to authorization under Liechtenstein law. The FMA informs that approval is only issued following a formal licensing procedure. According to the ‘LCX Vision Paper“ on its Website LCX AG is in fact applying to the FMA Liechtenstein for a Full-Banking license. Making the concern more about the regulatory sandbox being played in rather than the actual players themselves (LCX). While the Blockchain Act mentioned earlier does help break down a few previous walls in the licensing process it’s still a decision left for the Financial Market “Authority”, which if denied said licenses could break the entire future ecosystem of the platform.
Finally, with the platform originally launched as a joint venture between Binance and LCX AG where the goal was to launch a regulated trading platform for crypto-assets and security tokens, licensed by the FMA. The joint venture company Binance LCX AG, which is not the same company as LCX AG, had stopped all partnership proceedings following initial investigations about suspected money laundering activities by Liechtenstein’s public prosecution office, the Financial Intelligence Unit (FIU). LCX had later cleaned up accusations made and the investigations were dropped on January 10th, 2020. Despite no findings of foul play, this was still a huge step back for Metzger and his team through the FMA’s regulatory process and a huge loss for integrating into the existing ecosystem.
In closing and overall I’m quite impressed with what LCX has done so far and is ambitiously working towards. Unfortunately, because the platform runs off API keys it’s hard to gauge how many users are being onboarded and use the terminal currently. We can’t brush aside the importance of retaining the proper OTF/MTF banking license for the future of the platform. This would give LCX a golden ticket in every sense of the word and allow them to operate like no other crypto exchanges currently can. Heck, not even Coinbase has been able to get such a coveted piece of paper. Where Coinbase is just now starting that process, LCX started in 2018 within one of the crypto friendliest environments you could hope to be. Liechtenstein Cryptoassets Exchanges low market cap, lack of top-tier exchange at the moment, steady daily volume, and position as front running horse for a banking license. It can easily find its way into a medium risk long-term position in your portfolio.
Until next time, remember that the only guarantee is BTC. So keep stacking that Satoshi.