Polymath: Security Tokens are addressing shortcomings of the current financial system

As a top security token issuance platform, Polymath is leading the next wave of crowdfunding through quick and innovative solutions. Asia Token Fund is honoured to score an interview with Mr Thomas Borrel, Chief Product Officer of Polymath, to talk more about the developments of Security Token Offerings (STOs) in Asia.

What are the main drivers for the success of Security Token Offerings:

Security Tokens Offerings and Security Tokens, in general, are enabling:

  1. Efficiency – The move from manual updates of excel spreadsheets to a near instant settlement of transactions with reduced counterparty risk, or the automated distribution of dividends, vesting of equity, etc. are significant improvements over the current mechanisms in place. I anticipate these changes to not only create an incentive for more assets to be tokenized, but also, in due time, changes to regulations as technology provides a solution to what could only be addressed with stringent regulations (maximum number of investors being one of the most symptomatic examples).
  2. Transparency – The programmatic enforcement of trading restrictions ensures that key functions such as lockup periods, investor limits, suitability assessments of investors prior to primary or secondary market investments are automated and auditable. Additionally, the blockchain’s ability to deliver information in a decentralized, trustless way empowers investors with greater access to disclosure, and regulators with notification when critical properties of a Security Token are altered by its Issuer.
  3. Liquidity – Seed investments, private placements, and real estate are examples of financial products that are notoriously illiquid. Security Tokens supported by the blockchain provide these hard-to-trade products with marketplaces where they can be bought and sold globally, 24 hours a day, 7 days a week. Global transactions are possible under the traditional system, but require complex rules and regulations to be followed which create additional costs, and therefore decrease liquidity. If those complexities can be automated via code, we foresee increased global liquidity.

How should STO prove their worth in the bear market?

STOs will prove themselves through the successful issuance of high-quality security tokens followed by a demonstrably increased level of liquidity, and the facilitation of other features such as cap table management, dividend payments and voting processes.

Today, we are seeing predominantly private placements, which have associated jurisdictional restrictions and lockup periods. This focus on accredited/professional investors will defer liquidity until lockup periods lapse but should not be seen as a deterrent or a reason to slow down. If anything, the industry altogether needs to “double-down” on its efforts to fill the issuances pipeline, as security tokens’ efficiency and transparency benefits can be demonstrated before the tokens becoming liquid. When the lockup periods lapse, high-quality issuances will demonstrate the liquidity benefits of security tokens.

Would institutions adopt security tokens?

Large institutions are expected to adopt security tokens slower than others. They’re also bringing another wave of requirements that we need to tackle collectively. The industry needs to collaborate to make sure that adequate tools, from investment to trading and continuous compliance are available across all markets, and that current regulations are properly enforced. Once these requirements are addressed, we’ll have a solid foundation to compete on value.

Until then, we should not wait for regulation to change, nor should we need to – Security Tokens can support current regulation for historically illiquid assets where benefits can be reaped by both Issuers and Investors.

What are some of the plausible outcomes after proving the successful STO model?

My expectation is that we will see an acceleration of the adoption of STOs as an alternative mechanism to fundraise as well as a broader set of use-cases for Security Tokens. We know that security tokens are the future of finance, but also realize this transition will take time. Security Tokens are addressing shortcomings of the current financial system, enabling new capabilities for existing financial products as well as new financial products.

Fractional ownership combined with a decentralized ranking of financial products supported by an infrastructure that provides instant settlement without an increased counterparty risk will continue to augment the capabilities of our financial system and the products available to all investors, whether professional/institutional or retail.

What is the advice you like give to those that lost faith in digital assets?

Digitization is inevitable. Most of what we interact with on a daily basis is digital. Oral and written communication have undergone this transformation over the past decade, and so has entertainment. Money and ownership, although often stored in one digital form or another have yet to undergo the same transformation. The move to shorter settlement cycles down to T+2 has created an incentive for electronic confirmation, and a transformative infrastructure, like blockchain, has the capabilities required to deliver near-instant settlement without increased counterparty risk. Security Tokens are here to stay – they are a comprehensive, transformative and adaptive response to the needs of our financial system, as they have been expressed and commented on by traditional industry thought leaders.

How would STOs perform in 2019 globally?

My anticipation is that STOs will continue to develop in very targeted markets starting with North America and South East Asia and remain focused on accredited/institutional investors. As the resilience and stability of the model are proven and its’ core benefits demonstrated, we can expect an expansion of use cases by early 2020.

What are some of the future plans of Polymath?

Our goal is to continue to execute on our roadmap to make security tokens simple and accessible to all. We will do that by growing our amazing team and by continuing to partner with the best service providers we can find.

Using the Polymath Token Studio, businesses have already registered over 150 token symbols and deployed over 60 security tokens on the Ethereum mainnet. We are humbled by these numbers and the trust we have earned through our relentless focus and execution.

2018 was a great year for collaboration in the Security Token space, and the outcome of the significant effort and resources we have spent to drive a Security Token Standard via ERC1400 have far exceeded our expectations. We anticipate that 2019 will be the year where Security Tokens based on ERC1400 make their first appearance, with tokens being offered in primary markets, and subsequently trading on secondary markets in a regulatory compliant manner.


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