Ethereum Token Standards & ERC884 & STO

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https://blog.chronobank.io/ethereum-token-standards-19fbcc54fe27

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https://blog.neufund.org/token-up-analyzing-the-emerging-security-token-ecosystem-80331e9f4af5
https://medium.com/@tatianakoffman/your-official-guide-to-the-security-token-ecosystem-61a805673db7
https://medium.com/@tatianakoffman/4-security-token-structures-and-the-lawyers-to-help-you-execute-them-53c8a5129f49

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https://docs.google.com/spreadsheets/d/1MM5j22WmeK9Lywu_9fRIWsEY18W7qDbcxx5wOBZUZ_k/edit#gid=1663861314

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ERC-884. Following a recent Bill, Delaware General Corporation Law now explicitly allows for the use of blockchains in maintaining corporate share registries. ERC-884 is designed to represent equity issued by any Delaware corporation, whether private or public, and includes several provisions over and above ERC-20 that support this use case. These include the requirement for token owners to be whitelisted/identity verified as an integral part of the token.

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https://legis.delaware.gov/json/BillDetail/GenerateHtmlDocument?legislationId=25730&legislationTypeId=1&docTypeId=2&legislationName=SB69

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https://medium.com/coinmonks/tokenising-shares-introducing-erc-884-cc491258e413

The Securities Exchange Commission (SEC) has additional requirements as to how a crowdsale ought to be run and what information must be made available to the general public. This information is, however, out of scope of the ERC-884 standard, though the standard does support such requirements.

For example: the SEC requires that a crowdsale’s website displays the amount of money raised in US dollars. To support this, a crowdsale contract minting these tokens must maintain a USD to ETH conversion rate (via an oracle or some other mechanism) and must record the conversion rate used at time of minting.

Implementers of a crowdsale, in order to comply with The Act, must be able to produce an up-to-date list of the names and addresses of all shareholders.

Implementers must maintain an off-chain private database that records the owner’s name, physical address, and the Ethereum address used to own their ERC-884 tokens. The implementer must then be able to extract the name and physical address for any Ethereum address, hash that data, and compare the resulting hash to the hash recorded in the contract using the hasHash function, thus affirming the veracity of their information. The specific details of this system are left to the implementer.

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https://github.com/ethereum/EIPs/blob/master/EIPS/eip-884.md

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https://hackernoon.com/the-blocks-of-a-security-token-platform-cd8aada4af43

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Swiss
https://www.mtpelerin.com/blog/world-first-tokenized-shares
https://www.mtpelerin.com/blog/unveiling-the-mt-pelerin-bridge-protocol
https://github.com/MtPelerin/MtPelerin-protocol

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https://www.investopedia.com/terms/t/tokenized-equity.asp

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https://medium.com/@apompliano/the-official-guide-to-tokenized-securities-44e8342bb24f

What are the disadvantages of Security Tokens?

The removal of financial institutions from investment transactions is generally seen as advantageous by the crypto community but there are also a number of disadvantages & risks associated with it. When you remove middlemen, you have to shift the middleman’s responsibilities onto the buyer or seller in the transaction.
Normally financial institutions serve a few functions: underwriting a deal, preparing marketing materials, soliciting investor interest, ensuring high levels of security & regulation compliance, and ultimately driving a successful execution of the transaction.

Security Token Offerings (STO) will require the issuer to underwrite their own deal via third party audits, prepare marketing materials, generally solicit investor interest, and have high confidence in their security & regulatory compliance. Many traditional investors believe that a large percentage of potential issuers are incapable of successfully executing these functions without traditional financial institutions.

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Are Security Tokens legally compliant?

If you take away one thing from this guide, remember this: When Security Tokens are done correctly, they don’t skirt laws & regulations, they remove financial institutions and middlemen.
This is because Security Tokens are subject to federal securities regulations — they are compliant from day one. There are three regulations in the Securities Act of 1933 that every person should be aware of when looking at US-based Security Tokens: Regulation D, Regulation A+, and Regulation S.

Regulation D — This allows an offering to avoid being registered with the SEC, but requires an electronic filing of “Form D” after the securities have first been sold. The individuals offering the security may generally solicit investors for an offering that meets the requirements of Section 506c, which requires verification that the investors are accredited and the information provided during the solicitation must be “free from false or misleading statements.” In most cases, investors who purchase a Regulation D offering may not sell their ownership stake for at least 12 months after their initial purchase.

Regulation A+ — This exemption allows an issuer to offer a security qualified with the SEC to non-accredited investors through general solicitation for up to a total of $50,000,000 in investment. Due to the requirement to register the security, Regulation A+ issuance can take longer compared to other options. Regulation A offerings require qualification of a Form 1-A offering circular, including audited financials. Due to the requirement to qualify the security and complete an audit, Regulation A+ issuance can cost more and take longer compared to other options. Regulation A+ offerings treat all money raised as revenue and tax it as such if the money doesn’t represent equity in the underlying company.

Regulation S — This is when an offering of securities is deemed to be executed in a country other than the US and therefore not subjected to the registration requirement under section 5 of the 1933 Act. Issuers of the security are still required to abide by the security regulations in each country where they offer their security.

Disclaimer: The above summaries of US securities law, including Regulations A+, D, and S, are merely my personal opinion. They should not be construed as legal or investment advice and you should consult a lawyer for any and all questions you have.

The Official Guide To Tokenized Securities – Anthony Pompliano – Medium.pdf

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https://hackernoon.com/regulation-s-for-stos-310c40948ce

Regulation S provides an exclusion from the Section 5 registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), for offerings made outside the United States by both U.S. and foreign issuers.[2]
Regulation S consists of five rules:

1. Rule 901 outlines the general statement that the US Registration Requirements apply only to “offers and sales” of securities that occur within the United States and its territories;
2. Rule 902 defines the terminology pertinent to Regulation S;
3. Rule 903 provides a safe harbor for transactions involving issuances of securities that comply with specified guidelines (Primary Offer Safe Harbor);
4. Rule 904 provides a safe harbor for offshore resales that comply with specified guidelines (Secondary Market Safe Harbor); and
5. Rule 905, which provides that equity securities of US domestic issuers sold in compliance with the requirements of the Primary Offer Safe Harbor are deemed “restricted securities” as defined in Rule 144 under the Securities Act and subject to holding periods (and related requirements) before they can be resold without restriction in the United States.

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https://hackernoon.com/traditional-asset-tokenization-b8a59585a7e0
https://hackernoon.com/the-security-token-thesis-4c5904761063

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https://www.fintech.finance/01-news/mt-pelerin-first-company-globally-to-tokenize-its-shares/

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https://www.securities.io/security-token-offerings-sto/

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https://blog.polymath.network/create-your-own-security-token-offering-sto-with-polymath-7d37f8cd9a6c

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Types of Security Tokens

In my opinion, the emergence of different classes of security tokens will be a key sign of the maturity of the space. This step was never important in utility tokens as their behavior is not dictated by financial assets. Security tokens on the other hand, are programmable representations of financial instruments and, consequently, they should imitate the economic behavior of the underlying asset.
If we agree that we will have different types of security tokens the next relevant question is to determine which types. Whereas the current generation of security token protocols have done a solid job enabling the regulatory behavior of crypto-securities, the next wave should abstract the main financial dynamics of tokenized securities. At the most basic level, I believe the next wave of security token protocols will enable four key financial models:

· Debt Tokens: Tokens that represent a debt or cash generating vehicle.
· Equity Tokens: Tokens that represent an equity position in an underlying asset.
· Hybrid/Convertible Tokens: Tokens that convert between debt and equity based on their behavior.
· Derivative Tokens: Tokens that derive its value from underlying tokens.
While models such as Securitize’s DS Protocols or Harbor’s R-Token represent the compliance layer of security tokens, these new types of security tokens will dictate their financial foundation.

In the next few sections of this essay, I would like to deep dive into the protocols that can enable the different types of security tokens. Today, I would like to focus on debt instruments.

https://hackernoon.com/security-token-2-0-protocols-debt-tokens-af17d5c91a25

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https://medium.com/@tatianakoffman/4-security-token-structures-and-the-lawyers-to-help-you-execute-them-53c8a5129f49

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ethereum/EIPs#1411
https://blog.polymath.network/erc-1400-a-library-of-interoperable-security-token-standards-4c4e632cdfbc
https://github.com/ConsenSys/ERC1400

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CMTA-Blueprint-for-the-tokenization-of-shares-of-Swiss-corporations-1.pdf