Last week, Polymath brought together 40+ individuals from across the blockchain space including developers, KYC experts, securities lawyers, and transfer agents, to the beaches of Barbados with the goal of building a protocol for security tokens.
Specifically, Polymath’s goal was to receive feedback on their ST-20 protocol which will serve as a backwards-compatible extension for ERC-20 tokens. The big difference here is that ST-20 enables issuers to conduct Security Token Offerings (STOs) that better comply with existing security regulations by introducing transfer restrictions during both issuance and secondary market trading.
Over 90% of the $14b raised with ICOs has been using ethereum and ERC-20 tokens. However, the underlying protocol has challenges in complying with existing securities regulation in the United States, Canada, and beyond, because of:
- Reg S – Ensuring international buyers don’t transfer tokens into the US
- 506 B – Knowing the actual number of token holders
- Suitability – Investments must be suitable based on income, risk tolerance, age, liquidity
- Accredited Investors – Validating that secondary trading is only done among accredited investors when required
- Sanctions Screening – Knowing if secondary trading is done in sanctioned countries or by sanctioned individuals
- Legends – Ensuring tokens contain the required legend information
As a result of these shortcomings, the thought is that the world’s largest companies, as well as institutional investors, will not be comfortable until this infrastructure is improved.
So, Polymath brought together experts to discuss the high-level future of security tokens, as well as the lower-level details like how would certain functions work. Over two days in beach houses we discussed:
- Software Development
Leading the charge was Fabian Vogelsteller who helped create the initial ERC-20 token protocol and who created the Mist Browser.
The KYC group that IdentityMind supported contained
- Kevin Lehtiniitty – Prime Trust
- Jor Law – Verify Investor
- Justin Newton – Netki
- William Baxter – Vertalo
This group worked to ensure that ST-20 tokens would bake compliance into its functionality, both in the initial sale as well as the secondary market. This was presented to Polymath’s software development all-stars Pablo Ruiz (VP of Engineering) and Adam Dossa (Lead Solidity Developer).
As a result of the hard work by all the different groups, Polymath has a tremendous amount of additional knowledge about how to best move forward with their community-driven standard. This knowledge will help their ST-20 protocol or modules to support the protocol. Moreover, Polymath’s advancements may help traditional entities enter the security token field, both from an investment perspective as well as an issuance.