Applications and Use Cases

Polymath Announces the World's First Security Token Blockchain: PolyMesh

May 20, 2019

There have been many regulatory standards offered for certain facets of compliance on the Ethereum blockchain in the past year alone. Compliance is necessary as securities and other portrayals of value that are now often being stored on the blockchain are subject to regulatory compliance liability. By integrating security tokens, they have to comply with current securities legislation. Some if not all of these protocols have been implemented and being run on the Ethereum blockchain, but there is still a long way to go.

Polymath, a decentralized platform that makes it easy to create and manage security tokens announced this week they will be building the world’s first security token blockchain, termed Polymesh, working in collaboration with Charles Hoskinson, co-founder of Ethereum and Cardano.

The Polymath ST-20 standard codes the regulatory requirements into the tokens themselves, confining trading to verified participants only. The platform makes it easier to create a security token with a goal to bring the multi-trillion-dollar financial securities market to the blockchain.

The announcement came from Polymath’s Co-founder, Trevor Koverko and Charles Hoskinson at Consensus 2019, being held in New York, May 13 - 15.

“We’re incredibly excited to work with Charles on a purpose-built blockchain for security tokens,” said Trevor Koverko, co-founder of Polymath. “As the co-founder of both Ethereum and Cardano, Charles brings one-of-a-kind expertise to Polymesh, and is the perfect person to act as Polymesh’s co-architect.”

Consensus, the annual gathering of all those actively working in the cryptocurrency and blockchain technology sphere, has been a successful event since 2015 that has attracted many major companies, developers, founders, and investors to engage in a yearly discussion about the future of the industry allowing separate companies in the industry to spend time learning from each other. Previous speakers have included Fred Smith from FedEx, Jay Clayton, the chairman of the US Securities Exchange Commission, and Abigail Johnson of Fidelity.

“After co-founding Ethereum and Cardano, two of the most widely used blockchains in the world, I am looking forward to working on PolyMesh. There are quadrillions of dollars of financial securities, and building a blockchain to secure them is an incredibly exciting task,” said Charles Hoskinson, co-founder of Ethereum and Cardano, founder of IOHK.

Until now, Polymath has built their solution for security tokens on the Ethereum blockchain with over 120 Security Tokens being created using the Polymath Token Studio, but adoption has been slow on the uptake and Polymath believe that this is largely due to the lack of compliance.

“Ethereum was not purpose-built with regulations or compliance in mind. It was built to enable “unstoppable applications”. By contrast, Polymesh is being built from the ground up with these considerations to become the underlying infrastructure for the world’s capital markets.” Graeme Moore, Head of Tokenization at Polymath

Compliance is difficult. It can be costly, monotonous, and appear political, but compliance ensures that organizations observe a set of strict rules, standards, and processes that have been put in place. These rules are there for many reasons which include national security, money laundering, and to deter other criminal activity within financial structures.

Even in the decentralized world, compliance is necessary for certain digital assets. While asset distributors need to think about how to ensure that their digital assets remain compliant in the market, the capacity to code compliance into the security tokens themselves may limit the need to rely on people who are subject to human error.

In order to make this upgrade possible, the company believes there needs to be a standard for security tokens that utilizes these benefits while satisfying regulations. “With a standard in place, security token issuers, investors, exchanges, wallets, custody providers, and regulators can become comfortable with this technology, interoperability becomes easier, and adoption can be widespread,” their website says. “Similar to how the ERC-20 standard enabled the boom in utility tokens on the Ethereum blockchain, there needs to be a standard for security tokens.

The standard we have built at Polymath is ST-20. ST-20 is an extension of ERC-20 that introduces the ability to restrict transfers of blockchain tokens. ERC-20 tokens do not have any transfer restrictions and therefore can be freely traded by anyone. This is fine for so-called utility tokens. When dealing with securities, however, all securities holders must be KYC/AML verified, and there are many additional restrictions on the distribution and trading of securities. ST-20 is the solution to this problem. It allows security token issuers to maintain regulatory compliance through transfer restrictions. And beneficially, it is backward compatible with ERC-20 making it interoperable with much of the existing blockchain infrastructure available today.”

Learn more on Polymath’s website.

Arti Loftus is an experienced Information Technology specialist with a demonstrated history of working in the research, writing, and editing industry with many published articles under her belt.

Edited by Ken Briodagh



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