Editor's note: This article has been updated to include an interview with Graeme Moore, head of tokenization at Polymath
Security token management platform Polymath today announced it is quitting the Ethereum network. It will move its platform to its own public blockchain, which it’s codenamed Polymesh.
Instead of Ethereum, Polymesh will be built on top of the Parity Substrate framework. Polymath has also made Polymesh’s codebase public. It plans to launch its testnet in the second quarter of next year, and its mainnet in the fourth.
So, why quit Ethereum? According to Graeme Moore, head of tokenization at Polymath, the company is concerned with compliance.
“In Ethereum, identity is not built into the base layer and addresses are pseudonymous. In the regulated world of financial securities where identity and KYC/AML compliance checks are a must, this results in having to build Ethereum-based identity solutions that are much less than ideal, and that are ultimately unscalable,” he told Decrypt.
Another problem, he said, is the anonymity of miners on Ethereum. ”If an institution makes a security token trade on Ethereum, and the gas used to execute that transaction gets paid to a miner in a sanctioned country, or to someone on an OFAC blacklist, that institution is now in trouble,” he said. Not so with the Parity Substrate framework.
The Polymath team said the move follows much deliberation. “During the research phase of Polymesh, we considered multiple approaches, including forking an existing blockchain runtime like Geth for Ethereum, building our own network from scratch, and using a framework like Parity Substrate or the Cosmos SDK,” it said.
It settled on building Polymesh on Substrate for several reasons.
First, its modularity—on its existing Polymath ST20 protocol, “features, compliance rules, and functionality can easily be added to the core infrastructure through new modules.” It says that Parity Substrate is built in a similar way. “It comes production-ready with a library of modules covering things such as block production and finality, balance management and governance features as well as support for smart contracts,” the team wrote.
Second, Polymesh claims that, because Substrate uses industry standards like LibP2P and WASM, it’s future proof, and gives Polymesh the interoperability it needs.
Third, it claims that, with Substrate, Polymesh is “optimized for compliant assets operating in regulated markets.” Substrate’s GRANDPA mechanism provides a specific type of finality mechanism—one that “provides deterministic guarantees around finality”. This, writes Polymath, is highly advantageous when operating in capital markets.
Polymath is also interested in Substrate’s “Forkless Upgrades”—a method that gets around Ethereum’s controversial forking process. One of Ethereum’s EIPs is feared to lead to broken smart contracts. Another, ProgPoW, would reduce the network’s reliance on power-hungry and expensive ASIC miners, but has raised security concerns.
Decrypt has reached out to Polymath for comment and will update this story further.