As the security token ecosystem continues to evolve, the security token standard ERC-1400 first published around three months ago has expanded itself from a single ERC to a library of security token standards, where each of them represents a different facet of modelling the lifecycle, trading, and management of securities on Ethereum.
The aim of this is to provide different entities with a wide range of asset building standards. The companies will have different options for customizing and managing the ownership of their tokenized security asset. This suite was created in order to motivate the issuance of security tokens on the Ethereum platform.
Let’s have a detailed look at the operation and behaviour defined by each of these groups:
ERC-1594: Core Security Token Standard
ERC-1594 basically covers the core functionality framework that is needed for all security tokens.
- Off-Chain Data: There is a general belief that the boom of tokenized securities will remove the decentralizing of cryptocurrencies, but with this ERC standard, both smart contracts and data will work without any interruptions. Off-chain data, has the potential to improve the user experience by simplifying the workflow, cutting costs and on-chain transactions.
- Trading Restrictions: With ERC 1594, the trading is set to be be seamless. Transaction will be checked on-chain same like the ERC-20 transactions on etherscan. In addition, the on-chain process will verify the validity of transactions in terms of the amount the sender claims to have sent. The on-chain process will also prohibit the sender from transacting if they have not filled out a KYC which is a necessity to trade security tokens.
ERC-1644: Controller Operations
For many assets it is a requirement to have a controller operation that will give someone who is vetted to perform a transaction between the addresses forcefully. This is mainly needed for court orders, fraudulent activities or lost private keys. The security token owners will have the visibility into such process, and they can also prevent it if the action taken to transact forcefully has not been approved by them.
ERC-1410: Partitioning Balances
One of the key advantages of blockchain is its transparent nature. It is quite likely that the security token implementations will partition its user balances into different set of categories based on vesting, time locks, voting, etc..
For example, let’s say that a random investor has the following categories of shares:
- 30 tokens — Locked for 3 years, no voting rights
- 40 tokens — Locked for 1 year, full voting rights
- 50 tokens — Unlocked, full voting rights
For the purposes of effective governance you would want to know that 90 tokens provide voting rights, for the purposes of trading there is a balance of 50 tokens, and for valuation purposes you care about the total of 120 tokens.
ERC-1643: Document Management
This ERC standard provides a smooth documentation feature. It allows verified personnel to attach documents that have been notarized to the tokenized securities. The update of every document is captured on-chain via its hash which acts like a unique fingerprint of the document and a URI to the underlying document stored off-chain. In the current mechanism there is no way to tell that an investor has read or acknowledged a particular document.
This article is written with the help of Polymath’s Medium article by Adam. For a more in-depth look feel free to read it here.