Security token platform Polymath has joined forces with Loopring in order to execute trials of peer-to-peer trading of security tokens on a decentralized exchange.
Polymath reported that the successful tests which used smart contracts on Loopring’s DEX protocol have demonstrated that only authorized trades of ST-20 security tokens were able to execute, while the other unauthorized trades could not execute. The ST-20 security token standard created by Polymath is an extension of the more generalized ERC-1400 standard that introduces the ability to restrict transfers of blockchain tokens.
How The Test Was Executed
Every time a trade is attempted, the token calls for its transfer manager module and effectively asks, “If the trade can be executed?” The transfer manager after receiving the message, checks a whitelist to see if the buyer and the seller are allowed to trade the token. Only if the answer comes out to be yes, then only is the trade executed. This is how tokens are able to maintain compliance in the secondary market throughout their entire life-cycle.
Polymath reportedly traded a cryptocurrency called ““wrapped ETH” with an ST-20 token named Cammazol, with an authorized transfer for the token succeeding (check it here) and an unauthorized one failing to transfer (check it here).
About ST-20 Standard
ST-20 is an extension of ERC-20 that introduces the ability to restrict transfers of blockchain tokens. ERC-20 tokens do not have any transfer restrictions and therefore can be freely traded by anyone. This is quite fine for utility tokens but in case of security tokens all securities holders must be KYC/AML verified, and there are many additional restrictions on the distribution and trading of securities. ST-20 is the solution to this problem. It allows security token issuers to maintain regulatory compliance through transfer restrictions.
Graeme Moore, vice president for marketing at Polymath said “What we are showcasing here is that decentralized exchanges and security token issuers have the ability to maintain compliance through the standardized protocols that Polymath and others have built. And, in fact, security tokens make it easier for issuers to follow regulations, when compared with the legacy capital markets system using paper share certificates.”
Previously in early January, Polymath joined forces with Taiwan based firm LeadBest to jointly create a token economy ecosystem in Asia.