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Cryptocurrency startups have long sought to replicate elements of the US stock market on the blockchain for global digital-asset investors. However, the latest endeavor, led by Dinari, aims to tokenize equities while adhering to securities laws. Notably, Wall Street’s renowned trading firm, Susquehanna International Group, has backed this initiative.
Creating a Regulator-Friendly Ecosystem
Dinari, based in Los Altos, California, has taken a distinct approach to bridging the gap between traditional securities and blockchain. It acquired a US broker-dealer and is awaiting approval from the Financial Industry Regulatory Authority. Additionally, Dinari registered with the Securities and Exchange Commission as a transfer agent, enabling tasks like dividend distribution and maintaining records.
Regulation as an Enabler
Gabriel Otte, Dinari’s CEO, emphasizes that contrary to fears in the crypto space, regulation can foster growth. He points to the highly regulated US stock exchanges as a model that has led to a robust securities market. This perspective underscores Dinari’s commitment to operating within regulatory parameters.
Tokenizing Real-World Assets
Dinari is part of the growing trend of converting real-world assets into blockchain tokens. Their flagship product, dShares, enables non-US investors to use cryptocurrencies to purchase shares of major US companies and ETFs. Offered under Regulation S, these tokens are backed one-to-one by real-world shares purchased by Dinari. Notably, Alpaca Securities and Interactive Brokers provide custody services for the underlying equities.
Lessons from Past Attempts
Earlier efforts to tokenize US stocks, like the Mirror Protocol on the Terra blockchain, faced regulatory challenges and unregistered tokens. These endeavors garnered SEC scrutiny and encountered setbacks, highlighting the importance of regulatory compliance in such initiatives.
Financial Support and User Experience
Dinari secured $7.5 million in seed funding from investors, including Susquehanna International Group, 500 Global, former Coinbase CTO Balaji Srinivasan, and VC investor Sancus Ventures. Users verified under “know your client” rules can purchase tokenized shares using stablecoins. While token holders receive dividends, voting rights are not extended. A fee is collected from every transaction.
Transparency and Ambitions
Utilizing blockchain technology, every trade on Dinari’s platform is transparent and traceable. The company is actively seeking a third-party auditor to reinforce this transparency. Looking forward, Dinari aspires to establish an operating exchange for these tokenized securities using their broker-dealer licenses.
Challenges and Future Prospects
Dinari faces the complexities of navigating varied regulatory landscapes across jurisdictions. The company’s founders acknowledge the challenges but emphasize the gradual process of building a regulatory-compliant ecosystem. Holders of stock tokens can initially sell them back to Dinari, aiming for broader use in the crypto market. The tokens cannot be purchased outside US trading hours and must be stored in users’ digital wallets.
Dinari’s innovative approach to tokenizing US stocks on the blockchain, coupled with its commitment to regulatory compliance, sets it apart from previous attempts. With support from notable investors and a clear vision for the future, Dinari aims to reshape the intersection of traditional securities and blockchain technology.