Digital Company Shares on the blockchain — how does that work?
We are very pleased with the media attention we got in the past days regarding the official launch of the blockimmo platform. However the key focus was on the real estate investment platform and another big achievement went slightly into the background.
We tokenized 20% of blockimmo Ltd. Yes, 20% of the company blockimmo are turned into digital shares (or tokenized equity) and also this important element has been ruled positively with the competent financial regulator.
You are probably thinking, this has been done before… However, the projects that announced this always mysteriously leave out the details of how they connect the token to the underlying asset, how they solved this technically, and how it works in a practical way.
We are going to give you a clear insight into how we’ve done it. It’s actually quite simple. It’s done on the Ethereum Blockchain, with the ERC-20 Token standard and a couple of (really smart) smart contracts. That’s it. No special “Security” Blockchain or Platform, no complicated ERC-xxx standards — just using existing and standard technology executed in the right way. Now, let’s dive in!
This article is available in German written by our legal partner MME — LINK
Security Token Offering "done right" | Lexology
Der ICO Boom hat sich abgekühlt und die Anzahl der Projekte hat seit dem Q2 dieses Jahres deutlich abgenommen…
1. Legal Objectives
When structuring blockimmo, investor protection was at the forefront: it was necessary to find a structure that was legally as watertight as possible. In addition, the intention was to link the so-called underlying asset (meaning the platform’s bearer participation certificates offered for sale, see section 2.1) as closely as possible as to the security token. It seems obvious that the Security Token Offerings “STO” (of the platform company) must be in compliance with the applicable regulation. The challenge was to ensure that the tokens could be transferred as freely and simply as possible, i.e. without the need for any physical paperwork or signatures.
2. Legal Structure
blockimmo has chosen a bi-jurisdictional approach and implemented parts of the business model in Switzerland and Liechtenstein. blockimmo AG is domiciled in Switzerland and operates the aforementioned platform. The properties are held by a fund in Liechtenstein (learn more).
2.1 Digital Shares on the Blockchain
Tokenization of bearer participation certificates and STO of the Platform company.
Together with our established partners MME Legal AG and Bank Frick we introduce a new, clean way to synchronize a company share with a token. To be precise this means that 20% of the company shares were issued as 1'000'000 Partizipationsscheine (participation certificates without voting right, according to art. 656a sq. of the Swiss Code of Obligations). This creation was executed on the 31st of October and is publicly visible in the company register of Zug (Source).
We introduce a clean solution to solve 3 challenges:
- Onboarding for the blockimmo platform (using blockID) and thus investing in our STO is completely paperless — no need for physical signatures anywhere. Digital signatures (hashes) are done using your personal (Ethereum) wallet
- In general participation certificates have to be whole rounded numbers (i.e. 1.543 would not be possible) — this is a problem as tokens can have 18 decimals (i.e. 2.54859 IMMO)
- Deed and Transfer of co-ownership — within the designated smart-contract (link) the co-ownership and transfer between whitelisted addresses are available and automatically updated. In other words, the shareholder register is updated automatically on-chain
Now you are probably curious to learn how we were able to do this? We’re happy to share this with you and hope many more projects will follow the same road we paved carefully.
The 1'000'000 participation certificates are synchronized with a global certificate (Globalurkunde). This global certificate is safely held by Bank Frick. Precise details and further information can be found in our Prospectus ( both available in German and English), the company Term-Sheet and STO terms, available once you are whitelisted and in the process of joining our STO. Go to https://blockimmo.ch and click “Get Started” to… get started!
3. Technology merged with the legal requirements
As we are dealing with a real-world asset (company share) even in form of a (security) token, for various legal reasons we need to know at any time who the owners of the tokens are, and how much (%) each owner holds.
We solved this challenge directly on the Ethereum Blockchain. The solution consists of the implementation of several smart contracts.
The rights and ownership of a company (shares/stock) can be represented exactly the same as the rights and ownership to property (real estate). Therefore, we re-use our platform to tokenize blockimmo Ltd, just like we would a property, all the way from our smart contracts to our backend/frontend. Investing in our STO is done through our platform exactly as done for any of the properties listed.
From on-boarding, to the primary market (crowd-sale), to the secondary market, to managing your tokens/investment, each layer of our software stack is re-used exactly (eating our own dogfood). This gives us a rock-solid technical platform that has been tested extensively, internally and externally audited, and has an on-going bug bounty.
As mentioned earlier, we tokenized 20% of blockimmo Ltd from the nominal capital. On the Ethereum Blockchain you can find these 20% in form of tokens, called IMMO — in fact, you can check it out right here on etherscan. A total of 1 million IMMO tokens are issued and synchronized with bearer participation certificates (securitized in the global certificate).
blockimmo (IMMO) Token Tracker
The Ethereum BlockChain Explorer, API and Analytics Platform
Another smart contract (“Whitelist Smart Contract”) registers the wallets of the identified investors. In order to be whitelisted, an investor has to go through our on-boarding process (which we made in collaboration with Bank Frick and we white-labeled the solution into a separate service called blockID).
Without having gone through this process, no tokens can be acquired, neither on the occasion of the STO nor on the secondary market. Why not? Quite simply, with every token interaction (e.g. purchase or sale) our smart contracts check whether both wallets (seller and buyer) are on the whitelist. If this is not the case, then the transaction fails, or in other words, cannot be executed.
4. On-chain Register of blockimmo Ltd
The IMMO Smart Contract shows the holders of the tokens (link). The corresponding register (Token holders) are updated with every transaction and are therefore automatically and constantly up to date. Thus on the blockchain within the smart contract, there is a (pseudonymous) register of the Holders of bearer participation certificates of blockimmo Ltd.
Since all wallets (meaning all investors) at blockimmo Ltd are known, we can internally complement the register with the (private) personal data and thus at any point in time we know the exact details of all the investors (bearer participation holders) of blockimmo Ltd.
The legal structure built together with MME Legal and Bank Frick, which we outlined above meets all the necessary objectives. It is secure and proven and enables the paperless transfer of tokens. Until appropriate legal adjustments are made to facilitate the transfer of tokens, the solution with the global certificate and the ownership instruction (Besitzesanweisung) is a suitable means which is superior to other structuring options. With the sophisticated use of smart contracts, we have succeeded in creating a functioning product for the tokenization of company shares, and thus we’ve created a “shareholder register on the blockchain”.
Are you interested in our technology?
So there you go, digital shares / “Aktien 2.0" on the Blockchain. Do you have questions or are you thinking about doing something similar and want to know more about our technology? We can be your technology partner. Contact us! email@example.com