- $10 trillion securities ripe for digitization
- Security tokens improve pricing and liquidity of private security markets
- Security tokens may incorporate “smart” features that improve regulation
Like many other good things the Renaissance has given us, the ideal of the man proficient in many areas – the polymath – has lingered. The archetype was Leonardo da Vinci, who gave us the Mona Lisa. He was an accomplished anatomist, architect, astronomer, botanist, geologist, mathematician and painter. Renaissance thinkers believed that personal growth required the development of many talents, as well as exploration of diverse disciplines.
Now, that approach seems set for a revival of its own. Internet accessibility to information of all kinds is fostering a multi-discipline approach, like that adopted by Toronto company Polymath, to tackling business problems. Polymath is out to disrupt the $10 trillion securities market by improving the way securities are created, stored and traded (http://ccw.fm/jpt5G). The company has developed a blockchain-based securities token platform that makes securities easier to trade, which provides shareholders with more liquidity and companies with more accurate valuations.
Despite the ubiquity of digital technologies, 18 years into the third millennium, paper stock and bond certificates are still very much around. Polymath is aiming to change that. It wants to create digital securities – security tokens – using blockchain technology. Tokens, sometimes, confused with cryptocurrency coins, are a different animal. Currency is money and need have no intrinsic value. Bank notes, for instance, are simply paper and only have value because they are backed by the “full faith and credit” of federal governments. A token, on the other hand, represents an asset or something of value, and differs from a crypto-coin in the way that a stock certificate differs from a Federal Reserve note. While a coin will generally be widely accepted, a token will be less so. You cannot, for example, pay your utility bill with stock from Microsoft.
It’s obvious that digital tokens are ideal for representing stocks and bonds. Polymath CEO Trevor Koverko (http://ccw.fm/G6uRz) thinks that security tokens are the “next mega trend in crypto.” Their potential to digitize stock certificates, bond certificates, real estate titles, shares in limited partnerships and many more proprietary interests, with links to “smart contracts” using blockchain technology, makes digital tokens the ideal vehicle for improving many areas of the securities industry. By “tokenizing” securities, companies will be able to take control of their equity issuance through programmable code. In addition, the underlying blockchain system eliminates the need for an intermediary and the financial infrastructure, which raises transaction costs and hinders the deployment of capital.
Security tokens may also make the job of policing the securities markets easier. Since regulatory rules can be encoded into a digitized token representing a security, it will be impossible for that security to be traded in violation of its imbedded rules. Consequently, regulatory costs will be reduced, as some supervision is implemented by technology rather than by human actors, a process also likely to improve compliance.
Despite obvious benefits to safeguarding the financial markets, the biggest advantage of security tokens relate to increased liquidity in private security markets. Owners of securities in non-public companies often find it difficult to dispose of their holdings, since the shares are not publicly traded, but the low cost and accessibility of the platform is likely to increase participants, which, in turn will increase liquidity. As stocks are traded more easily and frequently, pricing will improve and valuations will become more accurate. Security tokens come with many benefits.
The Polymath platform has evoked a great deal of interest from companies planning both private and public offerings. Presently, it is creating a security token for CORL, the first company that will go public by offering a security token. Corl is a financial technology company that invests in startups using artificial intelligence and shares in their future revenue (http://ccw.fm/u5FYP). Trading of security tokens could start any day now on Open Finance Network (OFN), with whom Polymath has a partnership. The OFN has begun accepting applications to list security tokens and it is looking forward to adding tokens that use the ST-20 standard (the standard that Polymath is spearheading). Many other security token exchanges are in the works, including those from tZero, Templum and Hyperion. Polymath, through a joint venture, is also the largest single shareholder in the Barbados Stock Exchange (BSE), which the company plans to develop into a global security token exchange.
For more information, visit the company’s website at www.Polymath.network
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