Security token standards, and ERC 1400 in particular, go a long way towards making asset tokenization more viable, but it’s become clear as the industry has evolved that five issues with security tokens on general purpose blockchains need to be addressed in order to align the functioning of the blockchain with the requirements of modern capital markets.
This guide explains how Polymesh—an institutional-grade permissioned blockchain built specifically for regulated assets— addresses these gaps.
Securities issuance and transfer require a known identity, but most chains are built for pseudonymity. Polymesh uses a customer due diligence process to ensure all actors on the chain are verified and transactions are authored by permissioned entities.
Solutions built on top of general purpose blockchains struggle with processing the complex logic needed to comply with regulations. Polymesh builds compliance into the chain, enabling faster processing and lower protocol fees that can scale as demand and complexity of regulation grows.
Most market participants need their position and trades to remain confidential, but anyone can see holdings on general purpose blockchains. Polymesh has engineered a secure asset management protocol that enables confidential asset issuance and transfers.
Contentious forks in the chain present significant legal and tax challenges for tokens backed by real assets. Polymesh uses an industry-led governance model to prevent hard forks and guide the evolution of the chain.
Ethereum's probabilistic finality prevents the blockchain from serving as a golden record for asset ownership. By creating assets at the protocol layer, Polymesh is able to provide a simplified approach to transfers that supports deterministic finality.
Learn how a purpose-built blockchain enables asset tokenization by addressing the issues with Ethereum
“Polymesh streamlines antiquated processes and opens the door to new financial instruments by solving challenges with the public infrastructure through five key design principles built into the base layer of the chain, rather than as external add-ons.”