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Hydro Request for Comment #1 (HRC-1), Hail: Security Tokenization #7

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MasterSensei opened this Issue Sep 23, 2018 · 14 comments

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MasterSensei commented Sep 23, 2018

HRC: 1
Title: Security Tokenization
Status: Draft
Type: Informational
Created: September 22, 2018

Abstract

Some have estimated a multi-trillion dollar market for security tokens - securities tied to assets with attributes, investors, rights, and legal guidelines stored in a transparent way on a public blockchain. This is a request for comment on a new phase of the Hydro financial services public blockchain project, tentatively called "Hail," to combine the previous functions built for Snowflake and Ice, with the Hydrogen Atom and Element libraries, to create a leading security token marketplace.

Motivation

There has been significant demand from prospective clients of Hydrogen to create, trade, and sell securitized assets on the blockchain. Hydrogen has the core components and distribution available to overtake existing security token projects in usage.

Benefits of Tokenization

This has been extracted from Tatiana Koffman's Official Guide to Tokenization Ecosystem.

Tokens are tradable, and liquid. Unlike traditional VC funds that lock in investors’ capital for a period of 7 to 10 years, tokenized funds provide investors with immediate liquidity opportunities (12 months in the U.S.).

Additional benefits for investors include capital allocation flexibility, as capital can be dispersed more easily across funds, and smaller capital commitments.

Benefits of going through the tokenization process in this context include fractionalization of ownership, increased liquidity, automated compliance, after-hours operations, layered share rights and overall greater flexibility.

Some of the benefits of asset-backed tokens is the ability to subdivide larger assets into smaller units and to create unique and diversified products

Benefits of using the crypto bond structure include elimination of middlemen and registries, reduction in settlement time and decrease in operational risks. Tokenized debt can offer favorable tax treatment to the issuer and is not subject to the public issuance investor limit of 2000.

Specification

The security tokenization market is broadly divided into the following areas:

  • Private Company Equity Fundraising
  • Art
  • Real Estate
  • VC / Private Equity
  • Bonds

Open Architecture

It is proposed for this platform to be open architecture, allowing other projects, corporates, and investment firms to build on top of the protocols, integrate as dApps, or collaborate with components of the ecosystem. For Hail to be effective, it must seamlessly integrate other components of the Hydro ecosystem, such as Raindrop, Snowflake, Ice, Tide, and Mist. This will allow any client who onboards to the platform to create and trade security tokens in a secure and transparent manner. This will include multi-factor authentication of transactions, in app fast movement of tokens, document signing/storage/escrow, and machine learning insights.

UI

Hydrogen has a complete UI library and has a Vega visualization library that will soon be available via API. Components have already been built for security trading and trading platforms, both consumer and enterprise. This library can be extended to account for added Hail functionality.

Existing KYC Infrastructure

Hydro has a large advantage over existing security token projects because it has already built infrastructure, in the Snowflake phase, for on-chain KYC and AML that would be compliant in most areas. This can be combined with smart contract parameters that limit the persons that can buy and sell security tokens in the Hail ecosystem to a whitelist. Hydrogen's Atom platform also has integrations to large KYC APIs, and much of that off-chain infrastructure can be leveraged in Hail.

Use of HYDRO Tokens

The HYDRO token will be the native token for platform transaction and management fees, KYC, storing and releasing contracts funds from escrow.

Needed Standardization

  1. Standard legal framework to back and recognize the tokenized asset
  2. The token itself: ERC-20 or modifications of the ERC-20 standard
  3. Off-chain vendors (liquidity pools, market makers, custodians, brokers) that interact with the marketplace

Comments

HRC-1 is open for comments on product specifications, timeline, development tasks, and other open questions.

@realquink

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realquink commented Sep 23, 2018

Awesome Mike, love the drive and push you guys have :)

How would the other parts of this work to create the actual security token. I get the KYC/AML is included but what about the other legal stuff? Would it function like Polymath where you have partners with other companies that can do the legal side of the token (lawyers etc)? In other words, would there be a UI similar to Polymath the only difference being no need for KYC/AML partner as snowflake has this? Not that this is a bad thing, competiton is great, just curious.

@MasterSensei

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MasterSensei commented Sep 23, 2018

Awesome Mike, love the drive and push you guys have :)

How would the other parts of this work to create the actual security token. I get the KYC/AML is included but what about the other legal stuff? Would it function like Polymath where you have partners with other companies that can do the legal side of the token (lawyers etc)? In other words, would there be a UI similar to Polymath the only difference being no need for KYC/AML partner as snowflake has this? Not that this is a bad thing, competition is great, just curious.

Yes, in Ice there is already a proposal for all of these legal contracts to be created by specialists for signing and storage via dApps - the DAs will have all of these HCDP tasks up soon. This would just be an extension of that where a security can be created on top of it. So it is a proposal to use the other components already built and combine them into a smart contract that locks it all on-chain. The UI would be much more comprehensive, not just one for creating the tokens, but also a marketplace to find the deals, invest in them, etc, like Angel List. There is already demand in Hydrogen Atom for these kinds of marketplaces, so the UI will already be built.

@keithmali

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keithmali commented Sep 23, 2018

Wow Mike 🙌👏👏👏 the drive is great and applaudable.
Quick question;

Is the initial hydro token going to be converted to security token or Hydrogen is creating a new coin??

@smithymethods

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smithymethods commented Sep 23, 2018

Nice one "Hail Hydro" I don't think​ a new token would be created, but this new phase would utilize all the phases from snowflake to mist and would be powered by the Hydro token

Wow Mike the drive is great and applaudable.
Quick question;

Is the initial hydro token going to be converted to security token or Hydrogen is creating a new coin??

@hdfchdfc

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hdfchdfc commented Sep 23, 2018

In my opinion hydro should aim more for implementing security systems to credit cards and for monitoring the security systems of financial institutions

@MasterSensei

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MasterSensei commented Sep 23, 2018

Nice one "Hail Hydro" I don't think​ a new token would be created, but this new phase would utilize all the phases from snowflake to mist and would be powered by the Hydro token

Wow Mike the drive is great and applaudable.
Quick question;
Is the initial hydro token going to be converted to security token or Hydrogen is creating a new coin??

This proposal is for a platform, where you can create other tokens for off-chain assets, and use the HYDRO token as a utility within that platform

@MasterSensei

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MasterSensei commented Sep 23, 2018

In my opinion hydro should aim more for implementing security systems to credit cards and for monitoring the security systems of financial institutions

Hydro Raindrop and Snowflake accomplish some of this needed security, if you have additional ideas, please submit as an HRC

@milvinae

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milvinae commented Sep 24, 2018

@MasterSensei

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MasterSensei commented Sep 24, 2018

Hello Mike, fantastic idea which needs some consideration. I hope the community gets involved. One thought that comes to mind is under needed standardisation - 'ERC-20 or modifications of the ERC-20 standard'. Can you give more info on why erc20 should be the only standard, and why security tokens on alternative blockchains would not be acceptable. Is it purely, we need an industry standard for tokens and ethereum is the most decentralised, secure and stable option? As other chains grow they should become more stable etc, would it not be wise to keep the platform open to security tokens built on other blockchains, and not just those based on erc20?

On Sun, 23 Sep 2018, 12:52 Mike Kane, ***@***.***> wrote: In my opinion hydro should aim more for implementing security systems to credit cards and for monitoring the security systems of financial institutions Hydro Raindrop and Snowflake accomplish some of this needed security, if you have additional ideas, please submit as an HRC — You are receiving this because you are subscribed to this thread. Reply to this email directly, view it on GitHub <#7 (comment)>, or mute the thread https://github.com/notifications/unsubscribe-auth/AZZT_btxowM_PRcD-pjOK2RSs_IJLKl1ks5ud3XygaJpZM4W1hHs .

This could easily be an open architecture platform that supports others, such as StellarX, which looks good, or NEM, or Waves. Hydrogen already has the infrastructure to do this, and the partnership team is working with some interoperability folks to make the platform even more extendable to other protocols. But I believe the HYDRO token on Ethereum can play an integral role by acting as the main water in the pipes to make everything work efficiently.

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milvinae commented Sep 24, 2018

@AndyHydro

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AndyHydro commented Sep 24, 2018

Here is a proposed ERC standard for security tokens. We should read through this and see how we feel about it. We could work off of this standard or attempt to create our own ethereum/EIPs#1411

@realquink

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realquink commented Sep 24, 2018

Here is a proposed ERC standard for security tokens. We should read through this and see how we feel about it. We could work off of this standard or attempt to create our own ethereum/EIPs#1411

I think working off this would make the most sense with the work and conversation that has been going on around 1400 already. Also I'm guessing liquidity for the securities created on this might be easier to achieve if exchanges implement this standard. Then using Hydro token as the gas or utility around this.

@DANILORCORTAGA

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DANILORCORTAGA commented Oct 13, 2018

Very Imformative :) thank Mike :)

@MasterSensei

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MasterSensei commented Nov 6, 2018

If there are no further comments, I will submit a motion to the core team and the Hydro Community to add this to the protocol level roadmap

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