Polymath Token Review (Poly)

Author: El Crypto Chapo @El_Crypto_Chapo

Quick Overview

Polymath aims to provide a network of legally compliant, regulated security tokens. Security tokens will streamline a legally compliant process for companies to tokenize stocks, bonds, and venture capital & private equity investments.

Tokenizing securities will make them more secure, accessible & liquid

Partnership with SelfKey (KEY), a project that would like to put personal identification on the blockchain

Goal of integrating SelfKey’s ID technology with the requirements for KYC/AML to comply with existing legislature for traditional securities

Partnership with tZERO (advisory)

Recent partnership announcement with CrowdfundX (AI-powered digital marketing)*

Creating the ST-20 standard for security tokens (similar to ERC-20 standard for utility tokens)

Ultimate goal of being the one-stop-shop for creating financial securities on the blockchain

*More info on security tokens can be found here.

A Closer Look

Initial Coin Offerings (ICOs) have surpassed traditional venture capital in recent years, with the amount of money being raised through this non-traditional means increasing every year. The numbers are staggering – almost $3B raised through ICO’s last month alone (March 2018).

Though money continues to pour into these ICO’s, almost none of them have registered with the SEC. They claim to be a utility token, thereby skirting the need to be compliant with SEC regulations.

This poses a major problem for the SEC as one of their primary missions is to protect investors. For the majority of cryptocurrencies today, there could be an argument made for and against defining them as securities. Thus, there is great debate in the US Congress, and many other government agencies around the world, about how these cryptocurrencies should be classified, how they can be defined, how they should be regulated, and who should regulate them. These types of tokens remain in a gray area from a legal standpoint, at least for now .

Traditional financial assets (real estate, stocks, LP shares, etc) have remained predominantly off the blockchain to date. These are clearly defined as securities, regulated by the SEC & traded through traditional brokerages. This is all changing as we speak and 2018 looks to be the year for a whole new ecosystem of tokenized securities. Both Investors and issuers are chomping at the bit to see the benefits of blockchain technology implemented in the traditional financial asset sector.

Why would anyone want to tokenize a traditional financial security?

The most apparent advantage for the issuers is that they will gain access to a much larger pool of investor capital. The investment denominations can feasibly be reduced to a fraction of what is considered today and investors will have access to participate in ventures which historically would have never been possible.

Other advantages of tokenization include lower fees for fundraising, increased liquidity due to token structure, and better security. The icing on the cake is that a tokenized market is open 24/7 and completely global, creating the perfect blend of inclusion and accessibility.

What is Polymath?

In short, Polymath is a project that aims to simplify the process of creating, issuing, and trading security tokens. The Polymath network is comprised of four primary components –

participants assets market platform processes.

Let’s break it down

Participants

Investors, Issuers, Legal Delgates, KYC Providers, Developers

Polymath will provide a platform where investors (both individual and instiutional) can validate their identity and residency, allowing access to applicable investment opportunities on the platform. Investors will pay a fee to KYC Providers to review their credentials and validate their investor ID on the blockchain. Once complete, the network can ensure investor identity and accreditation status comply with pertinent laws regarding each individual security token offering (STO).

Issuers will be linked up with developers who can assist with coding the desired security token. Each security token can have unique smart contracts embedded, allowing for dividend distribution, revenue sharing, asset ownership, restricted ownership by country, etc. The developers will provide secure code to create a token which meets all issuer requirements.

Legal delegates will have the opportunity to bid on reviewing new token issuances, they will be responsible for ensuring the issuance complies with all applicable regulation before launch.

Assets

The assets in the ecosytem are the tradeable, tokenized financial securities. The tokens could represent ownership in a company (shares), the rights to a physical asset (real estate, artwork, precious metal, etc), the rights to future interest or dividends (notes, bonds, etc), or any other type of tokenized asset. Creating these tokenized assets in a compliant way and providing for legal sale, ownership & trading is the heart of Polymath’s mission statement.

The ST-20 standard is essentially an ERC-20 token with an additional bit of code attached to it. The additional code will call a verifytransaction function which ensures both the buyer and seller comply with all legal & token-specific compliance requirements prior to allowing the transaction to be completed.

Market Platform

Once the tokens are created and distributed, there is a need for a marketplace so that they can be openly traded. Although the initial ICO appears to rise within the Polymath network, the team has set themselves up to outsource the secondary market. With a partnership with tZERO, it seems that it’s much more likely that tZERO will ultimately serve as the secondary market for the STO’s that are generated via the Polymath network.

Processes

The players have been identified, their arena has been created, the sport has been defined. Now, how about the rules & the strategy? This is where things get complicated & also where there is the least amount of tangible information available today. The solution will need to create processes which market the platform, attract talent to form a pool of developers & legal delegates, pair issuers with developers effectively, vet legal teams to ensure appropriate compliance, provide a user-friendly marketplace interface, integrate the KYC/AML aspects with SelfKey, and much more. Each of these components could pose monumental challenges and should not be taken lightly. The success of the project will heaviliy depend on the team’s ability to execute on creating efficient & effective processes.

Visual Represenation of Ecosystem

The Team

The Polymath team appears to be solid, with diverse experience in the tech space, crypto world & financial sector. They have chosen a great advisory panel as well, including some very accomplished individuals in the crypto space. On top of this, they’ve partnered with tZERO (marketplace/exchange), SelfKey (ID on blockchain) & CrowfundX (digital AI for marketing).

Bullish Case

Securities are a $10T market which is yet to be tokenized

Strong partnerships (tZERO, SelfKey, CrowdfundX)

Best marketing of any player in the space – most well-known to public

First mover advantage – within the last few weeks released Toro, which is a working testnet for creating new security tokens

Strong team & advisors

Active public communication – one of the largest Telegram groups

SEC & CFTC seem likely to deem at least some utiilty tokens securities, thus increasing the need for a platform like Polymath

Areas of Concern

Largely still an idea on paper, ambitious goals = Executional risk

Large token supply (1,000,000,000 total supply)

Outsourcing the major components: KYC validation, legal compliance, token development

New team & new project – started in 2017

No publicly released roadmap of any kind

Competitors in the space are developing rapidly – see below

How will Polymath attract developers, KYC providers and legal delegates to participate in the network?

Assumes there will be legal delgates who know how to code security tokens which will be legally compliant

Unlikely to get existing securities exchanges to move to Polymath network – more likely to token securities on their own internal blockchains

Unknowns with respect to regulatory changes & legislature (this could be said for nearly all investments in the crypto space)

A large budget being spent on marketing, meet-ups, conferences. High hype.

There is long-term value in the secondary exchange market, which doesn’t require the native POLY token. It would seem the value of the POLY token relies on the process of issuing new tokens only.

No long-term incentives to hold POLY token for any participants – this could lead to high velocity and suppressed network value

Summary

Polymath is attempting to disrupt one of the largest financial markets in the world – securities. It’s not a question of IF securities will become tokenized, it’s a question of WHEN. The benefits that come with bringing financial assets to the blockchain are too great to ignore. Securities are designed to be difficult to issue, this is partly to protect from a multitude of illegitimate offerings coming to the market. The concept looks well thought out and great on paper, however there is substantial executional risk with this project. A strong team and advisory board, combined with logical partnerships, have put Polymath in a good position to succeed. The fact remains though, that the scope of the project Polymath is trying to tackle is massive and contains many obstacles ahead.

After many hours of reseach and some deep digging, I would say I’m neutral on an investment in the $POLY token right now. Long-term, there are too many risks and areas of concern for me to be comfortable with a sizable investment. However, due to the market size and the limited players vying for share right now, I would like to have a position. Short term, their impressive marketing campaign can drive higher token prices and provide value. With the current price of $POLY hovering around $0.50/token and almost 70% down from the ATH just a few short months ago, it does provide an enticing entry point on the short-term horizon.

Chapo’s Bottom Line: Neutral/Bullish Short-Term & Neutral/Bearish Long-Term

Competition

–per Tatiana Koffman in her Medium post, Your Official Guide to the Security Token Ecosystem

Harbor is an open-source platform that enables traditional investment classes to migrate seamlessly onto the blockchain. Through a standardized process, Harbor streamlines regulatory steps to ensure that companies who migrate their assets comply with legal requirements. Through a Private Placement ICO, Harbor provides for a Reg D-compliant private sale, combined with a new token permissioning technology, the R-Token. The standard integrates requirements such as KYC/AML, tax rules, reporting information, and accreditation status into each new token formulated through the system.

Amount Raised: $10M (Series A)

Management: David Sacks, CEO, General Partner @ Craft Ventures, previously COO of Paypal, Founder of Yammer, CEO of Zenefits

Bob Remeika, CTO, VP Zenefits, Engineer at Yammer

Arisa Amano, CPO, VP Zenefits, Marketing at Yammer

Securitize is a regulatory compliant cloud service solution for the tokenization of securities, enabling tokenization of funds, companies, or other entities. The company provides several services including establishing the legal and regulatory readiness of the issuers and their legal team, streamlining investor registration in compliance with KYC/AML accreditation or other legal requirements, customizing smart contracts to match issuers’ unique requirements and security token data throughout the lifetime of the security. Spun out of SPiCE VC, the platform has secured commitments from companies running ICOs in aggregate of $500 million, including offerings from CryptoOracle, Kairos.com, Lottery.com and 22X Fund.

Management: Carlos Domingo, CEO and Chairman, Managing partner at Spice VC, Former CEO at Telefonica R&D

Jamie Finn, President, Former EVP Business Development Aki, AT&T, Kontera, Telefonica

Shay Finkelstein, CTO, CTO at SPiCE VC.

Templum is a regulatory compliant solution for security token issuance and subsequent secondary trading. Templum Markets (formerly Liquid M Capital, acquired by Templum for $1.3M) is a registered alternative trading system (ATS) and a broker-dealer firm. Templum offers a platform that both enables the initial sale offering of security tokens and operates as a marketplace in which secondary trading can take place by issuers and investors. Like many other solutions, Templum will integrate AML and KYC as part of the platform to comply with regulatory requirements.

Amount Raised: $2.7M (private round)

Management: Christopher Pallotta, CEO, MD at Raptor Capital Management

Josef Schaible, COO, Former Director at Salt Lending

Founded in 2015, Securrency offers a protected, scalable platform providing liquidity to previously illiquid assets. The company’s platform consists of several products: (1) Securrency™ — facilitates regulatory compliance and enables the trade or transfer of tokenized securities, (2) RegTex™- provides regulatory compliance services such as, KYC/AML reporting, validation of investor accreditation and eligibility, reporting, and tax submissions, (3) SmartContraX™ — a blockchain smart contract development service, (4) InfinXchange™ — provides standard interfaces for payments, exchanges, asset pricing, and other transactions.

Amount Raised: $10M

Management: Dan Doney, CEO, previously Chief Innovation Officer, Defense Intelligence Agency

Ron Poe, Compliance Officer, Captain U.S. Marines

John Hensel, COO, Retired U.S. Navy Captain, managed aerospace portfolios valued in excess of $15B

tZERO, a subsidiarity of Overstock.com, focuses on the development of various blockchain supported solutions for the capital markets. The company’s present offering consists of brokerage services, stock inventory management systems, smart order routing solutions through a network of more than 100 brokerages, a 24-hour trading platform, as well as other services. The company handles traditional equities but is planning on scaling its operations by integrating a token trading system for crypto securities. The company’s token — tZERO, is an ERC20 security token, that pays 10% of adjusted gross revenues to token holders on a quarterly basis.

Amount Raised: $114M (ICO in progress)

Management: Patrick Byrne, CEO, Founder and CEO Overstock.com, Founder Medici Ventures

Joe Cammarata, President, CEO SpeedRoute (tZERO subsidiary), CEO and founder at Sonic Trading

Ralph Daiuto, COO and General Counsel

John Gilchrist, CIO, previously VP of at Merrill Lynch

OpenFinance Network (OFN) is an open-source platform specializing in secondary markets for alternative assets. The OFN team has been working together since 2014, offering trading, clearing and settlement services. Recently, the team has refocused their attention on blockchain solutions and has developed a compliant standard by which tokenized securities can be exchanged and eventually issued on the blockchain. Last Month, OFN enabled one of the first verified compliant security token transactions and is now accepting applications to list additional security tokens.

Amount Raised: $2.2M (Series A)

Management: Juan M. Hernandez, CEO, Founder of PeerRealty, and the Pop Stock Exchange

Ian Shipman, Head of R&D

Orderbook is a decentralized exchange that automates the process of investor verification through a specialized token. The token, named RAP, ensures that ICO and other crypto related transactions are compliant by cross-referencing local jurisdictions requirement with its database of RAP token holders’ credentials. For example, if an investor who does not meet the proper regulatory requirements attempts to buy a token on the exchange, the system compares the investor’s permission level against an internal database and prevents them from finishing the purchase.

Management: Andrii Zamovsky, Founder

Stephen Pettibone, CCO, Former VP of compliance at NASDAQ

Disclaimer:

An investment in any project involves a high degree of risk. There is the possibility of loss and all investment involves risk including the loss of principal. Any projections, forecasts and estimates are necessarily speculative in nature. Matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond my knowledge or control. Any data, calculations, or qualitative statements about the present or past may be erroneous. No representations or warranties are made as to the accuracy, reliability, or completeness of any statements. All information is provided “as is”, without any warranty of any kind. All statements are my personal opinion, unless otherwise specified.