“…the challenge is about taking things that are infinitely complex and making them simpler and more understandable.”
Robert Greenberg said this in 2006 in reference to the challenges facing advertising, but it’s especially poignant today. In fact, the idea of turning complexity to simplicity and understandability is ingrained in Polymath’s DNA. Our mission is to automate and simplify finance using blockchain technology and our latest version of Token Studio showcase exactly what this means.
The Evolution of Token Studio
We launched Token Studio three years ago on Ethereum. Since then, 200+ security tokens have been created using the technology, and we’ve been able to learn more about what makes the industry tick. The most important learning has been that security tokens cannot gain adoption and acceptance from regulators and institutions with a general-purpose blockchain; security tokens need something more specialized that addresses the foremost concerns of governance, confidentiality, identity, and compliance.
This realization was the catalyst for the Polymesh blockchain. And with a new chain, we’ve created a new Token Studio to help our users leverage the advantages of Polymesh when creating a security token.
There are three main benefits to using Token Studio on Polymesh:
First and foremost, the security token itself needs to be configured in a way that allows for proper management by the issuer and easy understanding of what the token is by tokenholders. A security token is a regulated instrument and our goal through design is to ensure that our users can easily meet the regulations and laws required of them, based on guidance from their legal and financial advisors. Token Studio offers a user-friendly UI to input the data required for detailed cap table management and future data feeds. After reserving your token’s ticker symbol, you’ll be walked through a series of inputs, such as, token name, asset type, security identifier like an ISIN or CUSIP, funding round, and divisibility of the token (i.e., can this token be held and transferred in full tokens or in fractions). Finally, we allow users to add reference material to the token so that their tokenholders can access all the necessary documentation in one place.
Securities regulation requires issuers having basic knowledge of the holders of their asset. General-purpose blockchains run counter to this. For example, Ethereum has no restrictions on who can access their chain or how many accounts they can have.
To use Polymesh, each user undergoes a simple identity validation check (Customer Due Diligence or CDD) with a KYC provider. Through this process, each user can only have a single unique ID on Polymesh, reducing the risk of an individual or entity holding multiple accounts. While each unique identity on Polymesh can have multiple addresses, security tokens are held at the identity level, so the compliance checks are tied to a single identity rather than non-unique accounts.
Using validated identities through CDD to manage security token transfers is a great first step to help with the compliance of regulated instruments. But identity is only a supporting feature. What sets Polymesh apart is the approach that simplifies compliance for issuers by using identity verification through CDD as a cornerstone.
If you used Token Studio on Ethereum, you’d have noticed our whitelisting feature where users upload a list of approved Ethereum addresses that may receive or send your token. Creating a list of all potential recipients and holders of your security token is time-consuming and inefficient at best, and impossible at worst. Unfortunately, this is the standard within the security token space. Polymesh changes that with a Token Studio that supports a far more effective approach, allowing users to set the characteristics of who can hold and transfer their security tokens rather than by trying to identify each holder. This is done by setting claims-based token rules and then attaching claims to user identities that will be checked each time a user tries to send or receive your security token.
Claims are attestations about an identity for a specific security token written by an issuer-approved claim provider, such as a KYC provider, lawyer, or member of the issuer’s Human Resources team. Token issuers select and add approved claim providers through Token Studio. At the moment, Polymesh supports 8 types of claims:
- KYC — An attestation that a Know Your Customer check has been conducted and has a specified expiry date or is valid in perpetuity
- Jurisdiction — An attestation about the country that an individual or entity resides in
- Affiliate — An attestation that an individual or entity is related to your company/organization such as, a Director or Officer, employee, subsidiary, etc.
- Accreditation — An attestation that an individual is an Accredited Investor or Experienced Investor
- Exempted — A catch-all attestation where an individual or entity may not meet the other claim types
- Blocked — An attestation that an individual or entity is blocked from receiving your security token
- Buy Lock-up — An attestation that an individual or entity may not receive a security token until a specified date*
- Sell Lock-up — An attestation that an individual or entity may not transfer a security token until a specified date
Claims are a great example of how the power of blockchain applies to security tokens. On Polymesh, token issuers set the relevant claims for their token to manage, helping to ensure tokens are transferred to compliant parties. From there, claims are easy to update; they can be managed for the entire lifecycle of your security token, so as regulations or compliance rules for your token inevitably change, applicable restrictions can be updated to keep your token compliant.
*Currently in Polymesh, if you mint a security token to an individual or entity with an unexpired Buy Lock-up, tokens will not be minted. We are working on updating this functionality but until then, you may remove the Buy Lock-up claim, mint tokens and then re-attach the claim.
Token Studio on Polymesh is available to test through the Polymesh Aldebaran Testnet. Learn more about how to test here. To stay up to speed on new developments and testing opportunities, join the Polymath Beta Testing Community.