Security tokens: Detailed technology architecture pt 1
Security tokens are based on 3 key pillars
- Issuance
- Partial Ownership Tokens
- KYC complete wallets
Issuance
We have already discussed that security tokens are nothing but securities being recorded on a distributed registry.
Every offer that uses such a distributed registry will lodge its own disclosure docs with ASIC or if used internationally then with their local regulators as required.
Partial Ownership Tokens
We will be using the ERC 981 Partial Ownership standard as one of our key building blocks for security tokens.
Reference: https://github.com/ethereum/EIPs/issues/981
The current ERC Tokens while useful leave out key aspects of information needed to enable tokenized trade of real-world assets on distributed ledger technology. ERC20 fungible interface is great in its simplicity for issuing tokens that are fungible, but due to its open design and extensibility, can lead to manipulation by bad actors. ERC721 non-fungible interface is great in allowing uniqueness of token to represent an asset, and track its ownership, it restricts fungibility.
This proposal serves to describe a new Ethereum Interface for issuing tokens for asset owners who come to a marketplace with a finite quantity of their asset to trade, representing 100% ownership of that particular issue. They then choose to divide the asset into divisible units that increase fungibility of that asset.
The ERC981 token effectively allows the creation of fractional tokens for any asset without the need for a separate chain for each asset. You could have many sets of tokens, each set representing partial ownership in any particular asset.
Note that we are also currently investigating use of NEM and Stellar as the underlying chain, but in any scenario the underlying principles for the Partial Ownership tokens will still be the same.
KYC Complete wallets
One of the requirements for securities is that each holder should always be identifiable. So these security tokens can only be held in a wallet that is KYC Complete. This can be done in a manner as simple as verifying the wallet addresses against a list that maintains all the whitelisted wallet ids, in a distributed manner.
In the coming articles we will discuss how to verify that the issuance is done in a compliant manner as well as how to achieve the KYC process in a distributed manner and also verify the wallets are KYC complete without the need for a whitelist.
