Last week I joined the Polymath team at the World BlockChain conference in London. It was an exciting time to get direct feedback from the audience, investors and most importantly startups who are trying to navigate the wild, wild west of token sales. Polymath is the platform for financial securities tokens that investors, startups and established companies will need. According to the white paper, Polymath “brings well established securities regulations to the blockchain to dramatically improve the efficiency of financial securities markets”.

The amazing Brock Pierce boldly declared that venture capital startup funding is dead and token sales will become the mainstream method of investing in both social innovations and capitalist projects. Given the growing interest and the high yields of token sales recently, it is fair to assume that many other investors also agree with him. However, this will require the sale of equity and assets as tokens which brings token sales directly inline with several existing regulations for financial securities.

The need for regulation

Token sales are very hot right now with startups raising millions even in their pre-token sales. This funding will no doubt support innovative projects which have difficulty attracting traditional startup funding however it is no less speculative than current startup funding which is currently regulated. So while regulation is always a scary word to mention in tech circles since it’s will impede any fast-moving startup and worse still, bring criminal charges and imprisonment to potentially well meaning but misguided startups. However, the process of a token sale is an involved and complicated one that requires guidance if the startup wishes to avoid legal and financial troubles later when it can least afford the disruption.

We’ve seen the effect that China’s recent banning of bitcoin exchanges and token sales has had on the industry — increasing unsecurity and unease among both investors and startups. Startups and investors who once saw China as the hotbed for cryptocurrency innovation are now scrambling to secure their investments and find a new base of operations. While many may argue that China is simply continuing to manipulate the market while they launch their own alternatives, the decision to ban such activities is similar to the decision from the SEC to declare fraud in some token sales.

Why is regulation even necessary when blockchain and cryptocurrencies are ushering in new economies and an internet of programmable currencies? Put simply, cryptocurrencies exhibit many of the same features as FIAT currency hence all of the current issues with fraud must continue to apply in order to facilitate fair trading environments and prevent corruption. Even Brock warned startups that regulators are actively pursuing startups who take the “ask forgiveness, not permission” approach. Startups need to launch their token sales by doing the right things from the very inception.

How Polymath creates a compliance ecosystem

Essentially, Polymath is focused on creating an ecosystem for smart contracts which ensure that trading on token sales adhere to the required regulatory practices within the trading market. Polymath is a one-stop shop for financial securities tokens. Polymath’s structure is akin to Ethereum wherein it facilitates compliance not only at a legal layer but also at the app layer. Hence, compliance will be facilitated within the token itself. This provides opportunities for both legal and developer teams to contribute to the Polymath ecosystem. The Polymath stack is illustrated as shown below:

The Polymath stack

One of the key value propositions of blockchain technology is that it provides an economic incentive for users who contribute to the ecosystem. Polymath incentives the creation of its legal and compliance ecosystem by rewarding both lawyers and software developers who contribute to the development of regulatory contracts built on the POLY token within the Polymath market. Additionally, there will be recurring rewards for those who contributed to the most popular contracts which successfully meet regulatory requirements in the required markets. The more complicated the regulatory requirements, the higher the pay-out. It’s a win-win that decentralizes the current process for registering financial securities while also ensuring long-term benefits for doing so. The diagram below illustrates the issuance of tokens in the Polymath market:

Overview of the Polymath system

It is for these reasons that at the World Blockchain Conference that CEO Trevor Koverko declared that Polymath’s mission is to empower securities token development much like Ethereum empowered app/utility token developments. Unlike Ethereum, Polymath is focused specifically on facilitating the massive shift of trillions of dollars of financial securities to the blockchain while adhering to regulatory practices. The Polymath slidedeck sums it up pretty well:

Curious to know more about Polymath? Polymath is a one-stop shop for financial securities token creation in Q4 2017. You can find out even more about Polymath at their website and view the white paper as well