NFTs on Upstream, a regulated digital stock exchange, vs. existing NFT marketplaces
Upstream, a next generation marketplace for digital assets, securities, and NFTs
By Vanessa Malone
We recently announced the launch of Upstream, a MERJ Exchange Market powered by Horizon’s Ethereum layer-2 blockchain technology suite.
Upstream is a revolutionary global marketplace for digital securities. As an Ethereum smart contract powered exchange, the app-based marketplace facilitates initial security offerings with a compliant stock exchange listing, and real-time secondary trading of digital (ERC-20) securities for unique asset classes including celebrity ventures, SPACs, crowdfunded companies, dual-listed OTC Markets companies, common stock — and NFTs (ERC-721)!
Minting and trading NFTs on a fully regulated exchange introduces what we believe to be the next evolution of Ethereum layer-2 NFT trading. We also believe participating in a regulated NFT environment offers an array of benefits to creators and traders compared to existing NFT marketplaces.
Areas of concern for existing NFT marketplaces
1. Anticipated KYC/AML regulation coming to the NFT space
As with most technological innovations, many NFT platforms have moved faster than regulation which could be opening the door to KYC, AML, and securities law violation risks.
This could prove challenging. It is very uncommon for NFT platforms to require an identity verification process to participate, and most operate as a free-for-all, buyer-beware paradigm. On platforms with no required identity verification, buyers and sellers don’t know who they’re transacting with which can create an unnecessary money laundering risk.
2. Blockchain knowledge barrier
Most NFT platforms require Ether or some other cryptocurrency to purchase NFTs. This requires users to set up their own cryptocurrency wallet from a third-party like MetaMask, open an account at a cryptocurrency exchange, fund their account from their personal bank account or credit card, learn how to buy cryptocurrency, learn how to safely export cryptocurrency to MetaMask, connect MetaMask to an unregulated NFT marketplace (e.g. OpeanSea), approve access to all their MetaMask cryptocurrency, and finally, the trader is ready to bid on the NFT marketplace.
Not only is this process difficult, it’s also expensive and riddled with exchange fees to fund, fees to buy cryptocurrency (plus the exchange spread), fees to export cryptocurrency, fees to approve the NFT marketplace, and fees to bid on an NFT. And, if a trader is outbid, then all the fees are lost.
Traders then may choose another NFT to bid on, pay more fees and wait. Should a trader eventually win a bid, hold the NFT for a while, and sell it for a profit, then there are fees for selling, fees to send cryptocurrency profits back to the exchange, fees to convert cryptocurrency to money, and fees to export the money to a personal bank account. Today, using Ethereum, OpenSea’s largest marketplace, these fees are around $1,000.
For someone new to the blockchain realm, this adds a lot of obstacles from initial interest to an actual NFT purchase. With the wave of celebrity NFTs who are bringing in fans from a wide variety of blockchain knowledge, it’s important to keep the process safe, affordable, and intuitive for their fans.
3. Accessibility hurdle
The majority of NFT marketplaces are built on Ethereum. With Ethereum and NFT’s concurrent spikes in popularity, gas (network) fees continue to skyrocket, taking NFTs further out of reach of retail fans, and investors.
Paying $1,000+ to sell an NFT for $5 million may sound reasonable but many NFT participants aren’t spending millions on digital collectibles. For the everyday NFT collector transacting with lower amounts, the added gas fees for each NFT transfer, purchase, or cancellation may scare traders away.
How Upstream addresses the concerns
1. Fully regulated
Upstream is a fully regulated digital stock exchange which means our NFT market inherently meets U.S.-securities and bank-secrecy laws as standard practice.
Because Upstream onboarding includes identity verification, anti-money laundering (AML) and copyright protection, buyers and sellers are safeguarded. Upstream supports NFTs tied to high-profile athlete and celebrity IPOs that may list on Upstream, so it was critical to include measures that protect personal brands and their fans. This also creates a safe and secure NFT ecosystem for our community to transact in throughout the NFTs’ lifecycles.
“The explosion of the market surrounding NFTs and digital objects — which now totals more than $2.5 billion — necessitates a safe, regulatory-compliant environment for innovators in this space to flourish. By minting NFTs on Upstream, digital creators have access to a one-stop shop where they can not only reach a wide audience, but also be assured that copyright, KYC and AML guidelines are stringently enforced.”
— Mark Elenowitz, Horizon President
2. No blockchain knowledge needed
Upstream offers a true one-stop-shop for creating and selling NFTs with no third-party integrations and no blockchain knowledge needed.
Upstream traders automatically get an Ethereum wallet, and fund their trading account using a wire transfer, credit or debit card, PayPal, or USDC stablecoin. Upstream maintains certain insurances and bankruptcy protections for cash and securities held by Upstream Members. Details here. For Upstream creators, the technology can mint NFTs on the platform and place them up for auction in less than 30 seconds.
3. Accessibility
Upstream operates as a layer-2 Ethereum rollup with no gas fee for its users, no funding fee, no cryptocurrency exchange fee, no NFT bid fee, no NFT transfer fee for winning bids, and no ACH withdrawal fees to a U.S. bank. So, on Upstream, a trader could fund with $100, and buy an NFT for $100 with zero fees.
Upstream only charges creators/sellers a $1 NFT auction fee, and only upon sale will sellers pay a 2% sales commission, constituting some of the lowest creator/seller fees in the NFT space.
So, using the sample feeless $100 NFT purchase above, this NFT could be offered for resale for $1 auction fee. And, if it sold for $1,000, the seller would collect $980, and withdraw that money to their U.S. personal bank account for free.
Note, Upstream’s U.S. custodian-bank charges a $25 wire transfer fee to send money outside the U.S., and credit card companies, or PayPal, may charge their account holders standard fund-transfer fees.
Interested participants can begin browsing and participating in opportunities available today by downloading the Upstream app on iOS and Android. NFTs currently available on Upstream are exclusive works of art and reward-NFTs for the FRESH KILL’s Film. Interested NFT creators can reach the team at hello@upstream.exchange.
About Upstream
Upstream, a MERJ Exchange Market, is a fully regulated global stock exchange for digital securities. Powered by Horizon’s proprietary matching engine technology, the exchange enables investors to trade shares in IPOs, crowdfunded companies, U.S. and international dual listed equities, SPACs and celebrity ventures directly from the app https://upstream.exchange/. Interested issuers can reach the team at hello@upstream.exchange.
About Horizon
Horizon is a fintech company that builds and powers global securities exchanges with an integrated suite of software for compliant issuance, management, and secondary trading of securities. Their in-house solutions combine Wall Street and Silicon Valley to power the next generation of securities offerings and trading in the U.S. and globally. Learn more at https://www.horizonfintex.com/.
About MERJ
MERJ Exchange (MERJ) operates Upstream as a fully regulated and licensed integrated securities exchange, clearing system and depository for digital and non-digital securities. MERJ is an affiliate of the World Federation of Exchanges (WFE), recognized by HM Revenue and Customs UK, a full member of the Association of National Numbering Agencies (ANNA) and a Qualifying Foreign Exchange for OTC Markets in the US. MERJ is also a member of the Sustainable Stock Exchanges Initiative. More information can be found at https://merj.exchange/.
Disclaimers
This blog shall not constitute an offer to sell securities or the solicitation of an offer to buy securities in any jurisdiction where such offer or solicitation is not permitted. U.S. investors are not permitted to trade in Upstream listed securities. U.S. and Canadian citizens will only be able to trade in a security they currently own that has listed on upstream for liquidation only.
Upstream is a MERJ Exchange market. MERJ Exchange is a licensed Securities Exchange, an affiliate of the World Federation of Exchanges and full member of ANNA. MERJ supports global issuers of traditional and digital securities through the entire asset life cycle from issuance to trading, clearing, settlement and registry. It operates a fair and transparent marketplace in line with international best practice and principles of operations of financial markets. Upstream does not endorse or recommend any public or private securities bought or sold on its app. Upstream does not offer investment advice or recommendations of any kind. All brokerage services offered by Upstream are intended for self-directed clients who make their own investment decisions without aid or assistance from Upstream. All customers are subject to the rules and regulations of their jurisdiction. By accessing the site or app, you agreed to be bound by its terms of use and privacy policy. Company and security listings on Upstream are only suitable for investors who are familiar with and willing to accept the high risk associated with speculative investments, often in early and development stage companies. There can be no assurance the valuation of any particular company’s securities is accurate or in agreement with the market or industry comparative valuations. Investors must be able to afford market volatility and afford the loss of their investment. Companies listed on Upstream are subject to significant ongoing corporate obligations including, but not limited to disclosure, filings and notification requirements, as well compliance with applicable quantitative and qualitative listing standards.
