How Do Regulatory Classifications Affect the Liquidity of a Token?
Tokens classified as securities often face stricter regulations, such as mandatory registration and compliance with 'Know Your Customer' (KYC) and 'Anti-Money Laundering' (AML) rules. This can limit the number of exchanges willing to list them, especially in the US, and restrict the pool of eligible investors.
These limitations generally result in lower trading volume and reduced market liquidity compared to widely traded utility tokens. Compliance adds cost and complexity to the trading process.
Glossar
Unregulated Exchange Impact
Risk ⎊ The impact of an unregulated exchange is primarily characterized by heightened counterparty risk, operational risk, and regulatory uncertainty for all market participants.
Trading Volume
Liquidity ⎊ ⎊ Trading volume represents the total quantity of an asset ⎊ cryptocurrency, options contracts, or financial derivatives ⎊ bought and sold within a given timeframe, typically expressed in units or notional value.
Security Token Offerings
Issuance ⎊ Security Token Offerings represent a novel mechanism for capital formation, bridging traditional securities markets with blockchain technology, and enabling fractional ownership of underlying assets.
Market Liquidity
Depth ⎊ Market liquidity, within cryptocurrency and derivatives, fundamentally reflects the capacity to execute substantial transaction sizes with minimal price impact; this is particularly critical in nascent digital asset markets where order book depth can be comparatively shallow.