Security initial coin offering (ICO) specialists Polymath has announced a partnership with tZero. The Overstock subsidiary is currently hosting its ICO on SaftLaunch enlisting institutional investors for its security offer.
Apparently, Polymath has already provided advice to tZERO on the design, economic model, and distribution of tZERO’s security token, which will be issued under Reg D 506c – thus only accepting accredited investors in the US. tZero’s ICO is expected to raise $250 million with proceeds applied toward the anticipated development of a regulated trading platform for securities tokens.
Polymath wants to be the industry first security token launch pad becoming the open-source standard for launching securities tokens. Polymath guides companies through every step of the token launch process, while also ensuring strict legal compliances are met which is very important. The ICO industry is quickly becoming regulated around the world. The US SEC has been increasing its rhetoric on token offerings that do not apply for an appropriate exemption. ICOs will soon become completely legitimate.
“tZERO is on the precipice of disrupting Wall Street as we know it, says CEO of Polymath Trevor Koverko. “Our goals are similar—to create a thriving security token industry and allow companies and investors greater access, transparency and efficiency to an emerging token economy. We are excited to work with tZERO to provide ongoing consultation and support to the build out and distribution of the tZERO token, which will be a preferred equity token for tZERO.”Trevor Koverko, Polymath CEO
President of tZERO Joe Cammarata explains they are doing something unique: creating the first ever preferred equity security token:
“Projects of such innovation require best-in-class partners, and so we are excited to bring Polymath on as advisors.”Jo Cammarata, tZero President
Polymath advising tZero
The Polymath securities token platform enables trillions of dollars’ worth of securities to migrate to the blockchain. But we can’t power the security token revolution all by ourselves. Last week we announced that Polymath has taken on an advisory role in tZERO’s US$250 million ICO.
The tZERO token will be a preferred equity token that is tradable at a regulated trading venue.
Polymath, founded in 2017, has advised the majority-owned subsidiary of Overstock.com on the functionality of the tZERO security token, its design, economic model and distribution. tZERO has been building its regulated, blockchain-powered stock exchange for tokenized securities since 2014. It is already integrated with every U.S. equities exchange.
“We are doing something that has never been done before — creating the first ever regulated security token through the merging of blockchain and capital formation,” President of tZERO Joe Cammarata said in a press release.Joe Cammarata, tZero President
Introducing the Security Token:
Securities tokens could one day dominate the token revolution most commonly associated with ICOs and “utility tokens”. The ownership of equity, debt, funds, buildings, and any asset can be represented by securities tokens, similar to traditional forms of financial securities such as stocks, bonds, and pieces of paper denoting ownership. However, security tokens can deliver greater access, transparency, immutability, proof of ownership, and efficiency to real world assets than traditional forms of ownership.
But launching a security token today is an agonizing process. The infrastructure is not yet built to simplify the process and pull all of the necessary pieces together for a regulatory compliant security token offering. The Polymath security token standard (ST-20) is the new standard for security tokens, and part of the infrastructure we are building to greatly streamline the process of creating a financial security.
The Polymath ST-20 standard embeds regulatory requirements into tokens themselves, which restricts trading to only verified and authorized participants. Polymath and tZERO are working together to improve financial markets through faster trade settlement, improved record-keeping, and displacing the countless middlemen who rack up exorbitant fees. Polymath is excited to push the boundaries of decentralized technology with tZERO.
Polymath Network (Polymath) is a decentralized platform that makes it easy to create security tokens. The Polymath ST-20 standard embeds regulatory requirements into the tokens themselves, restricting trading to verified participants only. The platform simplifies the complex technical challenges of creating a security token and aims to bring the multi-trillion dollar financial securities market to the blockchain.
The Howey Test
Under the Howey Test, a transaction is an investment contract if:
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
- Any profit comes from the efforts of a promoter or third party
While it’s debatable that many of the existing utility tokens that we see in today’s ICOs fall under the definition of a security, there are almost no tokens that claim to be a security and regulated under its existing laws.
This is because Ethereum-based ERC 20 tokens are freely traded on exchanges with little or no Know Your Customer (KYC) or Anti Money Laundering (AML) checks to determine whether that person is qualified to trade securities.
Why Polymath and Harbor are needed?
This is where proposed protocols like Polymath and Harbor come in. Both projects are building on top of Ethereum with features like Know Your Customer (KYC), Anti Money Laundering (AML), dividends and more baked in. This means that exchanges would use these protocols to determine the rules that have been programmed into them and whether the buyer qualifies to buy them.
With their proposed solutions, we could see up to $256 trillion in assets added to the Blockchain. They will be traded globally and 24/7. They could unlock unparalleled capital and investment opportunities to those who previously never had them. They can also introduce new features like partial ownership of real-estate and other assets, increasingly liquidity and in theory, value.
The opportunities are enormous and the implications could be profound. This is why projects like Harbor and Polymath are so important. But what is the difference between them and which is better?
- They claim to be the first project working on this solution and have been working on it for 12 months
- They have a strong partnership with tZERO. While tZERO is yet to launch, it could be the most important securities exchange platform in the future. A partnership between Polymath and tZERO is a big competitive advantage.
- The team seems pretty strong with a long history in the crypto space
- They have Patrick Byrne (Founder of Overstock and tZERO) and Anthony Di Iorio (Co-Founder of Ethereum) as advisors
- They’ve already held large, successful conferences that have established them as a leader in securities tokens
- They have one of the largest active communities in the crypto space
- They’re already deployed on Ethereum Mainnet
- They’re yet to have a working ST-20 token being traded
- There’s a lot of hype. Probably too much hype considering their product progress
- They’re not backed by any of the major crypto VC funds that can help them establish partnerships, accelerate growth and provide the credibility that’s so important in this space
- They’re backed by Silicon Valley’s top venture capital firms that focus on Blockchain. This could help with partnerships and credibility
- David Sacks is the Founder and Chairman of Harbor. He previously created Yammer, Craft Ventures, Zenefits and was the COO of Paypal
- The rest of the team are almost as impressive and are mostly senior alumni from Zenefits and Yammer
- They’ve made a lot of noise amongst the Blockchain community and have quickly catapulted themselves to be one of the biggest brands to watch in the space
- They’ve partnered with OpenFinance which is a competitor to tZERO
- They’re much further behind Polymath in regards to development and mindshare in the securities market
- They don’t have any distinguishable advantages over Polymath at this stage
Poly Token Sale
Polymath (POLY) tokens surged as much as 20% in value during Thursday’s trading as markets reacted to the news tZero has issued its security tokens to investors. In a price surge reminiscent of the December bull-run, POLY is currently trading at $0.22. The tokens peaked at around 14:00 BST when the market cap surpassed $70m: just shy of $0.25 per individual coin. The price declined in the past four hours. The POLY market cap stood at $64m at press time, $6m below where it had been earlier that same day.
Polymath first started to rise last night, when coins spiked from $0.20 to over $0.24 within an hour. Although the price quickly corrected, tokens began to rise steadily throughout the evening and into Thursday morning.
tZero Token Sale
This initial spike followed news on Tuesday that tZero, a blockchain-based subsidiary of the internet retailer Overstock, had issued its security tokens. Sold during a security token offering (STO), between December and early August, investors with a signed agreement for future equity (SAFE) were issued with the tokens as early as last Friday.
Although the tokens have now been issued, holders still won’t be able to touch them. To be fully compliant with the Securities and Exchange Commission (SEC), security tokens need to be locked down for a full 90 days before they can be released, and then only to accredited investors. Normal investors will have to wait until early August 2019 – exactly a year after the token sale – before they can take their holdings.
STO vs. ICO
The security token was an unfamiliar concept, this time last year. The ICO was king; raking in projects millions of dollars in the blink of an eye, sometimes literally in the case of the Basic Attention Token (BAT) sale.
The market has changed since then. Investors became aware utility tokens didn’t confer much in the way of rights or responsibilities. The countless investors that took part in the Tezos (XTZ) sale – which raised nearly $240m for the project – had to chew their fingernails for nearly a year before they could access their tokens. Many promptly sold, unsurprisingly.
The ICO ecosystem has also been dogged by regulatory uncertainty. The SEC has suggested that they may represent unlicensed security token sales. Ripple is in court in California, battling allegations that the ICO for the XRP token was really a security sale.
Security tokens solve some of the issues that plague ICO’s. Being backed by a tangible asset gives them more security than the vague promise of future utility. STO’s are also already regulated, protecting investors from bad actors and outright scams.
Polymath and tZero have sometimes been called the ‘Starsky and Hutch’ of the security token world; the two formed a partnership at the beginning of the year. As a security token platform, Polymath provided tZero with advice throughout their STO. It announced in September it would host the STO for a new real estate project, based on the blockchain.
Investors are excited by the prospect of security tokens but there are still too few around. Existing actors, like Polymath and tZero, will likely benefit from each other’s good coverage until such time as the market expands and matures. It’s easy for investors to still lump all of the projects associated with security tokens together. This will change. A safe bet? Who knows – only time will tell.
When you’re talking about a $256 trillion market, there’s plenty of room for competition. In fact, it’s needed. However, in order for competition to thrive, they need to provide differentiating features to survive. At such early stages, clear differentiation between the projects isn’t clear.
They’re both building protocols on top of Ethereum. They both have significant, credible backing and they both have great teams. Polymath seems to come out on top considering it has a big head start in development and mindshare in the securities tokens sector. This could be short lived considering the early stage of securities tokens and the calibre of Harbor’s team and backing.
In the run-up to the company’s Wednesday morning appearance at CoinDesk’s Consensus conference in May, Polymath also revealed it’s in the process of closing a deal to acquire a large stake in the Barbados Stock Exchange and that it’s working on a deal with the alternative trading system tZero.
With those two partnerships, it believes it will have the platform to create tokens that can actually trade and dominate the coming transition of traditional equity to crypto. Neither deal is done, but Polymath CEO Trevor Koverko projects that they should be closed by early June. (Polymath raised $58.7 million in a private placement of tokens to accredited investors, according to Business Insider.)
Koverko sees a crisis of liquidity in security tokens. As CoinDesk previously reported, many of the tokens issued so far are under a lockup period required by U.S. securities regulations, but Koverko argues that’s not the whole story.
“It’s also because everyone’s scared to release them in the wild because you can’t prevent unaccredited people from getting them,” Koverko told CoinDesk. “What we’re doing is we’re bringing a measure of restraint and typical Wall Street-like compliance.”
Polymath has built a system that makes a whitelist of accounts that have gone through the know-your-customer, anti-money laundering (KYC/AML) and investor accreditation checks that make them viable to trade with. That way, once a token has been issued on Polymath, it shouldn’t be possible for an unaccredited investor in the U.S. to acquire it.
It’s calling this ST20, which it describes as a new standard for security tokens. For now, these tokens will be issued on the ethereum blockchain (it is not actually an ethereum standard). The company has partnered with SelfKey, IdentityMind and Shyft as its KYC/AML partners.
Polymath is one of several companies that have jumped into the token issuing space, which grows more crowded by the week. The firm describes itself as a platform, one that brings in companies and guides them through the process of issuing a security token. The companies with the strongest proposals will get access to elite consultants, legal counsel and possible investment from Polymath’s new security token fund, which it also announced this week.
One of Polymath’s partners, Gabriel Abed, founder of Bitt, a Caribbean platform for mobile money, explained the value of a crypto exchange in the country:
That means that if a company pays tax in one country, it doesn’t have to pay tax in the other.
“It’s quite cool as well when you look at the China relationship that Barbados has because so many Chinese companies have needed to look abroad as domestic regulations have banned new token issuances,” he said.
Bitt is in the family of companies, like tZero, that have investments from Patrick Byrne and Overstock.com. Abed is working to negotiate the use of TZero’s backend to run a crypto specific exchange out of the Barbados Stock Exchange.
Once the exchange is running, it will be a ready place for new tokens to trade, with guarantees built into the ST20 platform that no one will be able to hold them that shouldn’t. Koverko anticipates equity and real estate to begin quickly moving onto the platform. He also sees opportunities for people in the developing world with capital but without local financial infrastructure to make investments. Just as Africa skipped the landline phase and went straight to mobile, Koverko envisions a mobile-based capital market there as well.
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