Understanding What a Security Token Is…
During 2017, the initial coin offerings or ICOs raised more than $4 billion, creating the first indications of what some experts believe will eventually be a multi-billion dollar industry. Through these ICOs, startups can raise capital by issuing cryptocurrencies or a token from a particular blockchain, many of which use Ethereum.
It is important to know or remember that, depending on their function, tokens can be classified as utility tokens and value tokens. In simple terms, utility tokens represent future access to the company’s product or service. The characteristic that differentiates them from value tokens is that they are not designed as investments.
On the other hand, if the tokens obtain their value from an external or marketable asset, they are classified as value tokens, and they have to adapt to the securities regulations of each country. Therefore, the failure to comply with these regulations could result in costly penalties and could threaten the viability of the project. However, if a startup complies with all regulatory obligations, the value token classification creates the potential for a wide variety of applications.
The idea behind Polymath Network
Recently, SEC Chairman Jay Clayton emphasized that the ICOs will be met with stricter regulations, and explained that if a cryptographic asset issued by a company increases in value over time depending on the performance of the company, it is considered a value:
“You can call it a coin, but if it works as a value, it’s a value”, Clayton said.
Due to this, the issuance of a value token has become more complicated. Last October Polymath Network (POLY) was launched, which is a new standardized way of making a security token. This offers the tokens issuers and their users a secure and flexible platform to issue value tokens, without them having to worry about the legal implications of the creation of a value token. Polymath wants to become the one-stop shop for security tokens in the blockchain space, just as Ethereum did with stock tokens.
The new cryptocurrency standard provided by them is called ‘ST-20’, which combines the ERC-20 standard with new features required for legal compliance to be considered a security token. As a means of payment throughout the Polymath network, the token “POLY” is used, which is an ERC-20 utility token whose price is currently around $0.76. POLY also serves as a reward for participation within the network.
The idea of being able to issue a cryptocurrency that is protected by government regulations is practically a dream come true for crypto enthusiasts, however it is very complex to achieve and that is why this project still has a long way to go. POLY is close to reaching $1, and it will be interesting to see what percentage of the Polymath market it can capture in the coming years.