Polymath simplifies the legal process of creating and selling security tokens. It makes a new token standard, the ST20, and enforces government compliance. Only a “list of authorized investors and their Ethereum wallet addresses” can hold ST20 tokens. Therefore, token issuers don’t need to worry about the legal implications of their security falling into the wrong hands.
In order to launch a legally compliant token, the Polymath platform brings together issuers, legal delegates, smart contract developers, KYC verification, and a decentralized exchange. All transactions on the Polymath platform take place using the native POLY token. Due to the continuing government crackdown on initial coin offerings, Polymath hopes to instead provide legal Security Token Offerings.
The Problem
ICOs
In 2017, ICOs raised over $1.2 billion in funding by selling either utility or security tokens. Utility tokens, such as Waltonchain, give you access to a token’s network and are far more common than security tokens. Security tokens, however, provide equity or a claim to dividends from a company. As a result, security tokens, like any securities, are subject to government regulation.
Polymath’s new standard for blockchain security tokens aims to embed the necessary regulatory requirements into smart contracts and comply entirely with government security regulations. Consequently, Polymath believes financial securities would function better on a blockchain and wants to replace the term shareholder with token holder.
Securities
Government regulations “require investors to receive financial and other material information concerning securities being offered for public sale.” The goal is to “prohibit deceit, misrepresentations, and other fraud in the sale of securities.” It seems like a noble goal given the frequency of ICO scams and at least 46% of 2017 ICOs already failing.
For public offerings, companies must register their securities with the government. Unfortunately, this is an increasingly expensive and complicated process. Securities are then “bought and sold on secondary markets such as stock exchanges with fees ranging from 0.25% to 3%.” Polymath thus believes there is value in helping people legally registering their token while simultaneously providing a decentralized exchange with lower fees.
How Does Polymath Work?
Token Supply and Sustainability
Overall, there are one billion POLY tokens that will ever exist. You could have signed up for the Polymath airdrop before January 10th, 2018. Subsequently, airdrop participants received 240 million tokens.
At this point, the Polymath team retains the rest for future use. If you missed the airdrop, then you’ll need to trade for POLY on an exchange.
Polymath Securities Token Platform
The token platform involves three layers: an application layer, a legal layer, and the protocol layer to ensure your token is compliant and stays compliant. These layers aim to reduce the legal complexity and ambiguity surrounding securities while also minimizing fees and improving the liquidity of assets.
