Initial Coin Offerings - ICOs - caught everyone by surprise. By selling utility tokens, projects found they could raise millions of dollars in days, if not hours. For the investors, the returns could sometimes be astronomical.
But regulators were quick to crack down. In the USA in particular, ICO projects were accused of hosting unlicensed securities sales. Some have been ordered to reimburse investors.
The uncertainty surrounding utility token sales led to a shift towards security tokens. The main advantage is these are already covered by existing financial regulation. It is easier for a security token offering - STOs - to take place legally. As such, a new generation tokens, and platforms have emerged. One of the biggest is Polymath.
We explore more below.
What is Polymath?
Polymath is the ‘Ethereum of security tokens’. It's a token issuing platform providing the technological basis and the tools to create tokenized equity. Companies can issue security tokens to investors on the blockchain.
It isn’t meant for everyone, however. Investors need to complete all the legal compliance checks, including identity verification and money laundering controls, before they can use the platform.
Who created Polymath?
Polymath was founded by two Canadians, Trevor Koverko and Chris Housser. Koverko had previously worked in numerous fintech companies before transitioning into cryptocurrency in 2015. Housser spent four years in Toronto working as an associate in financial and employment law.
Did you know?
Long before Polymath, Koverko was a skilled hockey player. He was drafted into the New York Rangers Hockey team and even played in national competitions. Housser used to be an instructor in the Canadian army.
A brief history.
July 2017 - The founders establish Polymath Inc. in Barbados.
January 2018 - ICO manages to raise $59m.
August 2018 - Polymath main net goes live with its first five security token offerings.
November 2018 - Polymath introduces a pegged to fiat offering. Security tokens can now be quoted in US dollars.
What’s so special about it?
Regulatory certainty - Security token sales have to be in compliance with US financial regulation, some of the strictest in the world. Issuers can use the platform to register the sale with the SEC and file relevant legal documents. Investors need to first pass AML/KYC checks before participating in sales.
Accessible - The platform was designed to be easy to use. It does not require any technical knowledge about the blockchain. This means companies can focus on selling equity. Issuers can even use the ‘wizard’ application, which can create a functional security in a matter of minutes.
No middleman - There is a long and complex supply chain associated with traditional securities sales. Companies using Polymath can sell equity directly to investors. This reduces overhead costs and speeds the process up.
A standard - Polymath developed the ST-20 token standard. Similar to the ERC-20 standard, it means securities that launch on the platform are technologically similar, and can all interact with one another.
Did you know?
Polymath actually registered with the SEC and its ICO was made to be fully compliant with financial regulation. Tokens were issued as private placements to accredited investors.
How are POLY tokens produced?
POLYs are ERC-20 tokens on the Ethereum blockchain. They were pre-mined with a total of 1 billion tokens created. Just over a quarter were sold during the ICO. Polymath holds the remaining supply in reserve.
How does Polymath work?
Smart contracts - Investors looking to buy equity place funds in escrow. Both issuer and investor need to fulfill all the requirements before tokens and funds are released by the auto-fulfilling contract.
Identification- Investors first need to validate their identity and residency before they can participate in STOs. They also need to qualify as accredited investors. Participants will need to be whitelisted for each token sale. Getting whitelisted for one sale may not necessarily mean access to another.
Lockup period - Under American law, securities need to be locked up for a time before they can be issued to participants. This stops participants immediately flogging equity on the open market, which could drive the price down. Polymath has the same checks on its own network. Accredited investors need to wait 90 days; retail investors have to wait a full year to access their token.
What can you do with POLY tokens?
POLY tokens are utility tokens. They fuel internal transactions on the Polymath blockchain. They are also used to pay for token creation, compliance checks as well as network maintenance.
“What Ethereum did for tokens, Polymath will do for securities”, from the Polymath website.
Where ICOs raised a total of more than $4bn, Polymath predicts security tokens could be worth as much as $10trn by 2020. That’s a tall order. Even if it’s only half-right, the future of Polymath looks bright.