Why security tokens? 

Polymesh was created specifically to support security tokens. 

Security tokens bring numerous benefits 


Similar to traditional securities, security tokens represent ownership interests in an asset. They can represent ownership of:

 

  • traditional assets, think publicly-traded equity, bonds, debt, etc., or
  • traditionally illiquid assets, think private placements, real estate, artwork, intellectual property, synthetic asset baskets, etc.

 At the same time, they are created digitally and use blockchains to structure and automate functioning. 


Process efficiency 

Through the use of security tokens, legacy middlemen can be removed to save costs. In addition, efficient fundraising and trading, reduced settlement times, as well as improved processes of dividend issuance, voting capabilities, and liquidation preferences lead to greater efficiency. The tokenised cap table reduces overhead, administrative work, and general transfer time. These gains in efficiencies can be, and are, passed on to the issuer and investor of the token.


Market availability 

Investors have the opportunity to diversify their portfolio as they gain access to previously unavailable or traditionally-illiquid assets. In addition, a perfect digital record of ownership and of all transactions is maintained at any time. This increased transparency protects investors and mitigates actions of foul play, such as the back-dating of documents.

Portfolio diversification 

Investors have the opportunity to diversify their portfolio as they gain access to previously unavailable or traditionally-illiquid assets. In addition, a perfect digital record of ownership and of all transactions is maintained at any time. This increased transparency protects investors and mitigates actions of foul play, such as the back-dating of documents.

Automation 

Overall automation, as in the case of automated compliance and payments, is another benefit of security tokens. Jurisdictional regulations can be enforced by being built-in and customised into each security token's configuration. The same applies for automated payments, for example in the case of dividends.

Key pillars

Polymesh’s specificity gives the chain–and the applications built on top–an advantage over general-purpose blockchains

Identity

Securities issuance and transfer requires a known identity, but most chains are built for pseudonymity. Polymesh uses a customer due diligence process to ensure all actors on the chain are verified and all transactions are authored by permissioned entities.

Compliance

Solutions built on top of general purpose blockchains struggle with processing the complex logic needed to comply with regulations.

Confidentiality

Most market participants need their position and trades to remain confidential, but anyone can see holdings on general-purpose blockchains. Polymesh has engineered a secure asset management protocol that enables confidential asset issuance and transfers.

Governance

Contentious forks in the chain present significant legal and tax challenges for tokens that are backed by real assets. Polymesh uses an industry-led governance model to prevent hard forks and guide the evolution of the chain

Settlement

Settlement challenges prevent the blockchain from serving as a golden record for asset ownership. By creating assets at the protocol layer, Polymesh is able to provide a simplified approach to transfers that provides instant settlement without prefunding, prevents unwanted airdrops through trade affirmation, and can offer deterministic finality.