Tag: Security Tokens

Why a securities specific blockchain is needed, explained

by Cointelegraph

A successful securities-specific blockchain fills all gaps in the current Ethereum architecture by providing efficiency, automation and transparency.

Aligning a functioning blockchain with the needs of modern capital markets will require solutions to governance, identity, compliance, confidentiality and settlement. To address these gaps, Polymath has spearheaded the creation of Polymesh, an institutional-grade, public, permissioned blockchain built specifically for regulated assets. In practice, the platform aims to address these five challenges by:

  • Requiring users to validate their identity with a verified service provider when they are initially onboarded

  • Automating the compliance of assets in a transparent and real-time manner to simplify their reporting and remove the need for complex systems 

  • Implementing a confidential transaction workflow that allows cryptographic proofs to be safely mixed with off-chain declarations.

  • Operating under the governance of a main council and a set of specialized sub-committees 

  • Addressing the probabilistic finality that currently prevents the technology from acting as a golden ownership standard

Taken together, a securities-specific blockchain will address these five key gaps that exist in Ethereum’s architecture. A securities-specific blockchain will also provide increased efficiency, automation and transparency to capital markets in general. These three factors will act as significant improvements in bringing down the costs and time for existing asset classes and processes. The result will be lower fees, new investable asset classes, more exciting options for investors.

Polymesh launched on Oct. 28, 2021, following a successful incentivized testnet with more than 4,300 users. Users can now use the chain to create, issue, and manage security tokens as well as participate in on-chain activities like governance and staking.  

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you with all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.

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Societe Generale proposes historic $20M DAI loan in exchange for bond tokens

by Cointelegraph

One of France’s leading banks has turned to decentralized finance pioneer MakerDAO to propose the submission of bond tokens as collateral for a loan of the DAI stablecoin.

The historic proposal called “Security Tokens Refinancing” was submitted to Maker’s governance forums by the international bank on Oct. 1. It would be the first major collaboration between a traditional bank and a DeFi protocol and could open the door for closer integration between the two sectors.

Societe Generale (SG) labeled it as the “first experiment at the crossroads between regulated and open source initiatives.”

The bank has proposed that it provides “OFH” security tokens (obligations de financement de l’habitat) which are characterized as covered bonds under French law, and backed by home loans.

These would be used to collateralize a $20 million loan in Maker’s DAI stablecoin which would be mediated by a number of legal entities and mature in six to nine months.

The Ethereum-based security tokens were issued in May 2020 with a nominal amount of 40 million Euro ($46.3M) and a fixed rate of 0%. They mature in May 2025 and have the top credit rating of AAA by rating agencies Moody’s and Fitch.

MakerDAO founder Rune Christensen said he had “no clue” about this proposal, adding that “this is one of multiple recent examples in Maker Governance of how the post-foundation model of organization is proving to be more scalable.”

Industry observer “DCInvestor” commented on the potential impact of deals such as this on Ethereum and its position as a global settlement layer:

“Societe Generale with their attempt to get their on-chain assets usable in Maker and you’re wondering if Ethereum will become a global settlement layer it’s happening, now.”

SG stated that the loan would be a “pilot use case,” with the goal of helping to “shape and promote an experiment under the French legal framework,” and “enhance a profitable service and foster liquidity for digital bonds.”

SG Forge, a regulated subsidiary of the bank that deals with crypto assets, is managing the proposal which is based on the open-source framework CAST (Compliant Architecture for Security Tokens).

The legal framework for the deal is complex as it needs to integrate an institutional financial organization with a decentralized governance-based network. A flowchart provided by the bank details six separate entities involved in the process. These include the registrar Societe Generale Forge, the bank itself SG, MakerDAO, a legal representative for the DeFi protocol, security agent DIIS Group, and a third-party exchange agent.

Source: forum.makerdao.com

Related: Senator Warren’s office confuses MakerDAO for failed 2016 project The DAO

Pseudonymous MakerDAO community member ‘PaperImperium’ commented on the proposal in the forum:

“Maker and SocGen-Forge are standing at the precipice of financial history. What a time to be alive.”

The proposal is currently being discussed and will move to a formal governance vote in the weeks to come.

It is not the first time Societe Generale has dabbled with Ethereum-based security tokens. In April 2019, the bank’s SG Forge unit issued a 100 million Euro bond as an OFH security token on Ethereum.

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Federal Judge Denies Ripple’s Motion To Access The Trading History of the SEC’s Employees

by CryptoPotato

A federal judge in New York has denied Ripple Labs’ motion to order the U.S. Securities and Exchange Commission (SEC) to produce records of its employees’ crypto transactions in an effort to prove that the agency did not consider XRP to be a security.

The SEC Wins One Against Ripple

According to an official transcript, Ripple filed the request on August 27. Their rationale for the request was that if it were discovered that the SEC employees had traded XRP, it would at a minimum expose the SEC’s past lack of clarity about the nature of XRP and at most prove that the SEC did not consider XRP to be a security before.

Defendants argue that individual trading decisions will, at a minimum, expose the lack of clarity regarding XRP’s status and whether the SEC believed XRP to be a security. Such evidence arguably would undermine the SEC’s allegations that the Individual Defendants acted recklessly and would bolster the Defendants’ fair notice defense. Defendants contend that they are entitled to know whether the SEC permitted its employees to sell, buy, and hold XRP “as market participants” during the relevant period.

But Judge Sarah Netburn disagrees with Ripple for several reasons.

First, she upholds the relevance of the SEC’s argument that “the preclearance decision process does not involve any determination by SEC Ethics Counsel that a trade complies with the securities laws,” i.e., the SEC Ethics Counsel had not proposed any provision expressly relevant to XRP, so the trading history of SEC employees is irrelevant for the case.

Another key argument for the denial was essentially the lack of legal justification to approve Ripple’s demands. The federal rule protects the privacy rights of SEC employees as U.S. citizens.

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As to the annual certifications that Defendants seek, Congress has presumptively prohibited disclosure of such financial information through federal privacy statutes and regulations in order to maintain government employees’ privacy.

Ripple tried to use a similar argument earlier. The SEC asked for access to Ripple’s internal communications via Slack. As Cryptopotato previously reported, Ripple argued that producing such documents wouldbe a long, expensive process. This was not enought for the Court, which ended up ruling in the SEC’s favor.

Finally, the court explains that, in fact, the SEC had no trading policy regarding digital assets during the period of interest for the lawsuit, so its employees did not act in violation of the rule even if they had traded cryptocurrencies.

XRP Remains (Relatively) Unfazed

XRP did not overreact to the disappointing news. Generally speaking, the XRP market moves in pace with the developments of the Ripple-SEC situation, with rallies when Ripple scores a win and crashes when the San Francisco-based company has any setbacks (like today’s).

Price of Ripple XRP. Image: Tradingview
Price of XRP. Image: Tradingview

Currently, XRP is trading around $0.878, down about 5% in the last 24 hours and slightly recovering about 0.5% so far today.

This seems to be more of a natural reaction to the state of the markets than to Ripple’s case, in fact. Bitcoin, the SP500, and most global markets are going through a period of nervousness after the infamous Evergrande scandal exploded.

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Mati Greenspan warns SEC’s latest action could threaten future of all cryptocurrencies

by Cointelegraph

Quantum Economics founder Mati Greenspan has warned the SEC’s latest action against decentralized content platform LBRY could threaten the future of all cryptocurrencies.

According to the complaint filed by the SEC on March 29, LBRY is alleged to have offered and sold millions worth of unregistered securities through LBRY Credit tokens since 2016. The company has disputed the SEC’s accusations, as they state their tokens are utility-focused and not for speculation.

In today’s newsletter, ominous titled “Don’t let them kill crypto,” Greenspan asserts that if the SEC’s lawsuit against LBRY is successful, it will have dramatic consequences:

“Should the court side against LBRY, it would literally put the future of all cryptocurrencies, including Bitcoin and Ether, in question.”

Greenspan notes that the U.S has fallen far behind on crypto regulation and warns this case could set a precedent of classifying “multifaceted programmable money” as securities.

“Judges generally take their guidance from previous rulings on similar cases, so a negative ruling here could make it easier for them to kill off any project which utilizes crypto tokens. DeFi, non-fungible tokens (NFTs), smart contracts, and just about everything except possibly stablecoins.”

Greenspan believes the platform’s only crime was to set up in the U.S. and told Cointelegraph the case highlights the US’s  “backwards approach to forward-looking innovation.”

Although the Isreal-based commentator doesn’t think an SEC victory would stifle innovation in the crypto industry overall, it will certainly do so in the U.S.:

“It will simply drive it out of the United States. Projects like this are flourishing in Europe and some parts of Asia and the technology continues to progress globally. America is being left behind.”

LBRY has contested the SEC case, arguing that while the “SEC claims that Credits have no use other than speculation,” the Credits actually allow users to tip, publish, purchase and boost content on the platform, and the company “at no time indicated that LBRY Credits were an investment, and consistently discouraged purchasing Credits for this purpose.”

Greenspan has urged readers of his newsletter to either write a letter to congress to show support of LBRY, or visit helplbrysavecrypto.com. to get more educated about the “idiotic actions of American regulators.”

Despite sounding alarm bells over a negative outcome of this case, Greenspan told Cointelegraph he is optimistic:

“Hopefully, the judge will be able to see the blatant holes in the SEC’s case. LBRY seems to have some very sound arguments so I’m quite optimistic.”