5 Considering that transactions can fail for multiple reasons, user friendly error messages and ELI5 style text responses are a common sense suggestion. They take into account the fact that most users will not be tech savvy. In some cases, users who aren’t blockchain specialist may need to query the blockchain and determine whether a transaction will complete before they initiate it. User friendliness is key here.

4 Emergency recovery, retrieval and control standards allow the issuing party to control all digital securities wherever they may be and forcibly transfer them. Why is this even necessary you wonder?

The issuing party needs this degree of control because cases encountered through traditional securities offerings have set the precedent.

A few examples:

§ To recover digital securities if access to the wallet is lost.

§ To comply with court requests for forced transfers.

§ To exercise a drag-along right, which enables a majority shareholder to force a minority shareholder to join in certain decisions or the sale of a company.

§ To retrieve securities when the company goes public.

Ofcourse, since forced transactions are high-impact actions a system needs to prevent unjustified, impulsive or unauthorized actions.

Because of the need for strong corporate governance principles and contingency planning our very own smart contract standard — the Confidential Security Contract (XSC) — allows the issuing entity to appoint third-parties to co-sign before any important functionality is executed. The co-signing feature is made possible by threshold signatures.

3 Similarly, we’ve accounted for automated whitelisting and management of contractual restrictions in our design of the Confidential Security Contract (XSC).

Whitelisting allows for the issuer to ensure — through smart contract management — that only approved addresses can receive the tokenized asset. Token holders need to pass necessary KYC and AML screening in order to be listed on the Whitelist. In that way the issuers can create smart contracts which only allow for accredited or verified investors to possess their token.

2 With this development it is entirely possible to add other contractual restrictions to the contract as well.

Some examples of possible restrictions are:

§ You are issuing under an exemption, and to prevent additional legal requirements from kicking in the investor base need to be capped (SEC, 2000 investors; AFM, 150 investors).

§ Tokens need to be locked-up or vested (SEC, lock-up).

§ Shareholders should never own more than 20% of the total outstanding securities/voting rights.

Our Zero Knowledge Smart Contracts that run on the Dusk Network are designed to offer smart contract capabilities that can restrict trading to whitelisted individuals only. The management and adherence to the rights of the shareholder agreements, corporate statutes and legislation (such as directives or exemptions used to issue the digital securities) is entirely automated thus saving cost and time.

1 And lastly, the assurance of user privacy is fundamentally important if a digital security is going to meet compliance standards.

Compliance models worldwide require protection of customer data and adherence to privacy regulations. They serve to protect the players within the financial industry from leaking sensitive information or manipulating the market.

Primarily, privacy in the financial market is about creating a neutral level playing field and protecting market players, implying that all public transactional information should be anonymous. Consider a situation in which transactions are not anonymous. In this case, if an important market player is either buying or selling digital securities, it has instant market reaction as people would follow their lead, giving them manipulative power.

Europe’s GDPR guidelines require that companies grant natural persons the ‘right to be forgotten’ as well so it’s paramount that public information on a ledger is rendered anonymous. Likewise, the Financial Industry Regulatory Authority of the US oversees the enforcement of regulation S-P which requires broker-dealers to adopt written policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information.