Polymesh was built in response to industry demand for a securities-specific blockchain that can manage governance, identity, compliance, confidentiality, and settlement.
Most tokens were founded on the ERC-20 standard, which was established during the early days of tokenization. Yet the ERC-20 standard simply wasn’t designed for security tokens.
For one, organizations can’t rely on ERC-20 to enforce KYC for secondary trades. This doesn’t bode well for ownership certainty, an up-to-date cap table, or a recovery mechanism in the event of a lost private key.
Numerous entities tried to overcome these issues with proprietary standards, like the DS protocol from Securitize or the ST20 from Polymath. Yet this multitude of implementations ultimately only created friction for the industry. Custodians, exchanges, and other participants needed to perform extensive due diligence on the codes of the tokens themselves, in addition to their normal business due diligence.
Security tokens were intended to bring efficiency and reduce complexity, but the barrier created by so many standards was making tokenization counterproductive.
To tackle this problem, Polymath (the company which engineered Polymesh) brought together 25 companies composed of key industry professionals to propose a unified standard for security tokens on Ethereum.
This standard, ERC-1400, has since been adopted by a wide range of organizations including ConsenSys and BNP Paribas.
ERC-1400 aims to ensure the token’s code meets specific requirements and can be integrated by organizations without costly and time-consuming technical due diligence.
Acting as an umbrella of standards, ERC-1400 addresses requirements specific to the management of securities, including the ability to conserve UBO rights for custodied assets. It also resolves some challenges surrounding security token management by automating transfer control (including the need for KYC verification) and corporate actions (including capital distribution or voting).
Designed to be modular, ERC-1400 also permits new functionality to be added as required.
While ERC-1400 goes a long way towards making Ethereum more suitable for securities, there remain gaps in functionality and scalability.
Digital assets on Ethereum are programmed using smart contracts, requiring custodians, exchanges, and other market participants to integrate each asset into their environment individually. While ERC-1400 makes this process much more efficient by standardizing token configuration and eliminating the need for technical due diligence, there’s still room to speed up and automate the process.
As Polymath's involvement in the industry increased, it became evident that existing blockchain infrastructure simply wasn't sufficient for wide institutional adoption of security tokens. To take advantage of the true transformative potential of the technology, a purpose-built chain was needed.
Polymesh's genesis block was launched in October 2021 by the Polymesh Association, a not-for-profit entity whose mission is to promote and develop technologies and applications for the Polymesh protocol and ecosystem.
Early blockchain infrastructure simply isn't sufficient for wide institutional adoption of security tokens. To take advantage of the true transformative potential of blockchain technology, a purpose-built chain is needed.
Regulated markets require identity, compliance, confidentiality, and deterministic finality. Yet most existing blockchains were built for contradicting principles of pseudonymity, censorship resistance, and transparency, and rely on probabilistic settlement.
Enter Polymesh: an institutional-grade permissioned blockchain built specifically for regulated assets.
Polymesh streamlines antiquated processes and opens the door to new financial instruments by solving challenges around governance, identity, compliance, confidentiality, and settlement– the 5 “key pillars”. For maximum efficiency, the key pillars are built into the base layer of the blockchain, rather than as external add-ons.
With Polymesh, you don’t need to know the ins-and-outs of blockchain or code to interact with the technology.
Developers familiar with basic programming languages can issue security tokens by using the Polymesh SDK to plug right into the blockchain. Security token issuers who want an easy, completely no-code approach can use a tokenization platform such as Token Studio.