A deep dive into different layers of Security Token ecosystem
Security Token Ecosystem is a multi-layered complex ecosystem. Similarly to traditional financial security system where various parties are involved such as legal, financial and compliance institutions, there is an ecosystem that consists of technical, business, legal, marketing, finance, and collateralization to support the deployment of security tokens.
Layers of Security Token Ecosystem
Security token issuance platforms are regulated crypto platforms specifically established for issuance of security tokens. The primary goal of these platforms is to make the cumbersome process of launching security tokens easy & accessible to publicly listed companies. These platforms integrate KYC, anti-money laundering, investor management, and securities legal compliance to automate the primary issuance and secondary market transferability of any tokenized asset across all borders. These issuance platforms generally have their own security token protocol standards to which serve as the underlying layer to the tokens launched on their platforms. Standardized token interfaces for security tokens improves market liquidity and reduce friction in interoperability of assets and their trading. Several security token issuance platforms are competing for the spotlight to become the top-tier market standard protocol for STOs. Below are the top 5 platforms according to Novum Insight’s analysis:
Location: San Francisco
Harbor is a simple and intuitive issuance platform, especially suitable for real estate security token offerings. Harbor’s issuance platform streamlines investor onboarding, including KYC/AML, accreditation, tax forms, document signing, funding, wallet provisioning, and custody through integration with BitGo. Harbor’s R-Token, an ERC-20 token standard with additional capabilities, ensures that any supported ERC-20 wallet or exchange will be compatible with all necessary compliance requirements in secondary security token trading. Harbor is well-funded, having raised $38 million from Founders Fund, Pantera Capital and more.
Depends on the size of the project — custom quoting
Location: Toronto, Canada
Polymath proposes a platform that bridges the gap between financial securities and the blockchain. Polymath’s global platform provides legal and technical solutions for securitizing bonds, stocks and other assets on a blockchain. It is a decentralized issuance platform with four layers: Marketplace, Polymath Token Studio, ST-20 Protocol, and the Ethereum Network. The Polymath core smart contracts provide a system for deploying security tokens with built-in transfer restrictions on a decentralized blockchain. This allows for the formation of ST-20 compatible tokens that include the implementation of the desired legal requirements to satisfy the issuance process. Polymath’s proprietary ST-20 Protocol is run through the Ethereum network and serves as the platform’s architectural foundation. Polymath has partnered with various companies which include, SelfKey, IdentityMind, Open Finance Network, Pegasus Fintech, Vertalo, Blocktrade, Prime Trust, Monarch Wallet, Netcoins, GenesisBlock, Tokenizo and many more. Companies using Polymath for token creation include Corl, 7PASS, MintHealth, IPwe, and BlockEstate.
250 POLY for Ticker Registration + 250 POLY for Token Creation + 20,000–100,000 POLY for audited STO Smart Contract = 20,500 POLY total 8
Location: San Francisco
Swarm fund is a blockchain-based STO platform that primarily operates on the SRC20 protocol. SRC20 protocol is a cryptographic standard for security tokens to tokenize assets which include agriculture, real estate, equities of tech companies, etc. It is merely an extension of ERC20 which contains features that outlines legal structures, asset location, and transfer rules. The Swarm platform is focused on deploying conventional capital into the digital space by creating a clear market structure on the blockchain technology. Swarm also has its native token called SWM which facilitates economic activities on Swarm platform. In January 2019, they announced they will offer token issuers free issuance of their security tokens. With this, Swarm also announced an integration with global payments specialist Mercury-FX, which allows investors to invest in security tokens using over 30 fiat currencies.
Location: San Francisco, Tel Aviv
Securitize is a compliance platform and protocol for digitizing securities on the blockchain. They see digital securities (DS) as the modern way to raise capital. Securitize has created industry-standard compliance features for issuing security tokens. Securitize is well-funded, having raised a $12.75 million Series led by Blockchain Capital, Coinbase Ventures, Xpring (Ripple), NXTP and Global Brain Corporation. The company is the creator of the DS Protocol, which enables “DS tokens” to operate on top of the ERC-20 token standard. Securitize is one of the first issuance platforms to list high-quality security tokens, already issuing over 4 billion tokens from Blockchain Capital, SpiceVC, Augmate, 22x Fund and Science Blockchain.
Upfront fee + monthly recurring fee. The initial contracts are 2-year deals.
Location: Washington D.C., Abu Dhabi
Securrency is an all-in-one inclusive platform is desirable for those seeking a one-stop security token issuance service, automated post-issuance token support, and fully-interoperable token protocol for exchanges. Securrency has created the CAT-20 and CAT-721 token standards. CAT protocol cross-chain capabilities extend to networks such as Stellar, EOS, and Ethereum.2 In addition, Securrency has built core industry infrastructure to support the secondary market trading of security tokens across platforms worldwide. The issuance and post-issuance support platforms come with different pricing packages. Securrency has integrated with existing legacy systems to provide a multi ledger approach. Expected to come out in 2019, their push-and-pull infrastructure technology has integrated existing financial instruments that have been in the market before the creation of blockchains, such as trading and other financial services and activities.
SaaS-model pricing for enrollment and initial tokenization
Annual maintenance fees charged on issued tokens
Optional charge for project-based, customized solutions built upon core technology
Exchanges exist for investors to trade security tokens, enabling better access to capital, enhanced secondary liquidity, and democratized investor access to securities. Security token exchanges are a vital element to enable the tradeability of tokenized assets under the right regulatory framework. Under the present environment, the security tokens are allowed to trade on exchanges licensed by the securities regulatory authority of the country. The exchanges need to submit the mandatory documents and complete the required disclosure obligations set up by the regulatory authorities to get the license.
OpenFinance Network — OFN works under SEC compliant standards that will enable exchange and issuance of tokenized securities on the Blockchain. Besides tokenized securities, OFN network can also support traditional tokens and alt assets. OFN’s recent announcement that it plans to start partnerships with key Blockchain industry players such as Securitize, Harbor, Science Blockchain and Republic is a great indication that there is more listing of security tokens in the pipeline. The approved ST standards for tokens to trade on OFN’s exchange are DS Protocol, R-Token, ST-20, and S3.
Bancor (TBC) — Bancor protocol makes it easier for users to launch their cryptocurrencies on a smart contract- based Blockchain. The company was established in 2017 by the B-protocol Foundation. To create additional ways for tokenized securities holders to liquidate their holdings, Bancor requires her partners to commit to holding a portion of their capital on the Bancor network. The platform connects several tokens to a single pool of capital, therefore ensures liquidity even in a low transaction volume environment.
Gibraltar Blockchain Exchange (GBX) — GBX brands themselves as the global leading institutional grade token sale platform built upon the principles of decentralization and community consensus. GBX is a subsidiary of the Gibraltar Stock Exchange (GSX) which is an EU-regulated stock exchange institution launched back in 2015. The platform aims to help traditional investors to trade stocks through the use of tokens. To use Gibraltar Blockchain Exchange platform, you will need Rock Token (RTK). RTK is the medium of exchange here. It is the currency powering transactions, listings, and any other transactions on the GBX ecosystem.
Malta Stock Exchange (MSX) — In September 2018, the Malta Stock Exchange’s fintech and digital asset subsidiary, MSX PLC, has signed a Memorandum of Understanding (MOU) with crypto exchange Binance to jointly launch a new security token digital exchange. The new exchange will enable users to buy and sell security tokens which the two companies hope will make Malta the main destination for cryptocurrency and blockchain business.
Swiss Exchange (SIX) — Swiss Exchange has announced its plans to have its own security token offering in the second half of 2019 alongside the launch of its SIX Digital Exchange (SDX) platform for trading digital assets. In November, SIX listed a pioneering multi-crypto-based exchange-traded product (ETP), which tracks five major cryptocurrencies. The exchange also noted that the goal of the platform is not for trading cryptocurrencies but rather a marketplace where traditional investors can digitize their assets using the technology.
Custodians are popular for storing digital tokens in secure cold-storage particularly with institutions. Security tokens are often collateralized by real-world assets such as real estate leases or shares of private companies. During the tokenization process, these assets should be kept in the custody of third parties using mechanisms such as Trust companies or Special Purpose Vehicles(SPV). Custodians also play the role of third parties to keep these assets in custody. The introduction of custodianship is expected to herald the entry of institutional capital into the industry, acting as the missing link investors and fund managers have been seeking for entrance into the crypto market. Some of the famous companies undertaking this responsibility are:
Swizz Crypto Wallet