What Is The Role of Broker-Dealers In Digital Asset Markets?

David Azaraf | April 3, 2023
4 min read

Navigating the sea of capital markets is a challenging task for any individual or business, which is why the existence of trusted stakeholders is so crucial. One key player in capital markets is the broker-dealer, who is responsible for skillfully helping investors navigate the ever-changing seas of financial markets, providing regulatory protections and ensuring transactions are executed smoothly. The dawn of finance’s digital era has brought with it a wave of fresh opportunities and challenges for our trusty broker-dealer. In this unfolding landscape, broker-dealers with dual expertise in both capital markets and digital assets are crucial to navigating the shifting tides of finance successfully. As a licensed FINRA broker-dealer, INX is proud to play a central role in the establishment of the dynamic digital asset space through security token offerings. 

What is a Broker Dealer?

A broker-dealer is a FINRA licensed firm could be engaged in the trading of securities, amongst other services. Broker dealers are regulated by various industries. such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) in the United States, allowing them to buy and sell securities for both their clients and their own account. 

To illustrate the role of a broker-dealer in traditional markets, we’ll introduce the fictional CityCapital Group, a broker-dealer known for its expertise in helping businesses raise capital through traditional methods. CityCapital’s seasoned professionals understood the ins and outs of capital raises, and offer their services to any company looking to raise funds. When a new client comes in through their doors, CityCapital assesses their financial situation before helping them create a compelling investment pitch and choosing the right capital-raising path for them. Once the raise is live, CityCapital utilizes its network to generate demand and help its clients list on relevant trading systems for trade.

Bringing Broker-Dealers Into The Digital Age 

The rapid growth of digital assets has transformed the financial landscape, opening up new avenues for raising capital. Chief amongst those is the security token offering (STO), a novel way of raising capital by issuing digital tokens backed by real-world assets, such as equity, real estate, or even intellectual property. Unlike cryptocurrencies, security tokens are regulated by relevant regulatory authorities like the FINRA and the SEC, making them a secure and transparent alternative to traditional methods like Initial Public Offerings (IPOs) or private placements.

Key stakeholders, including broker-dealers, are finding the need to adapt to this shift by incorporating digital assets into their operations. In the context of digital assets, broker-dealers must add additional areas of expertise on top of their existing offerings, including: 

  1. Blockchain infrastructure: Broker-dealers facilitating access to digital asset markets must have a firm grasp of the underlying blockchain technology and appropriate products that provide a gateway to this new and dynamic market.
  1. Ensuring compliance: Unlike traditional markets, the regulatory landscape of digital assets is constantly evolving, and broker-dealers must ensure that they keep current with relevant rules and regulations.

The INX Advantage: Licensed Broker Dealer with Blockchain Expertise

In twenty years, it is likely that most, if not all broker-dealers, would have been well-versed in digital assets and blockchain technology. Today, INX stands out as one of the few broker dealers for securities offerings in the digital asset space. If you’re looking to raise capital, INX can serve as the perfect broker-dealer to take your offering to market. As both a licensed broker-dealer and digital asset marketplace, INX operates at the intersection of traditional finance and blockchain, giving us a unique edge when it comes to raising capital for our clients.

INX Securities, LLC (“INXS”) is a member of FINRA/SIPC. This communication is provided for informational purposes and is not a solicitation or an offer to buy or sell any financial instruments. Please visit www.inx.co for more information and additional disclosures.

David Azaraf April 3, 2023

Crypto enthusiast, help businesses plug into the token economy


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