Wrapped securities: enabling securities transfer into the DeFI

Sahra Brean
Nov 16, 2020 · 3 min read

As you know, a security is a regulated financial instrument that is fungible and holds a certain type of monetary value. It can be separated in three main categories: Equity (i.e. a company’s ownership), Debts (i.e. a creditor relation), Derivatives (i.e. an investment funds), or even a fraction of a real asset.

Many Companies in the blockchain ecosystem are using securities token (through ERC20) in a number of cases: capital fund raising, DAO, shares ownership, voting, dividends ditribution, Etc…

Because of transferability limitations due to the various functionalities of the token itself (such as blockchain protocols, smart contracts’ technical aspects, regulatory concerns, complexity regarding the governance, and transfer cost, voting), those equities or securities tokens are not well supported in DeFI protocols.

Decentralized Finance or DeFi has now been using wrapped tokens conveniently for some time, with wBTC or wETHfor instance. In simple words, wrapped tokens are usually ERC20 tokens with a total supply that represents the amount of a non ERC20 token contained in an address at a 1:1 ratio.

Wrapped Security (wSecurity)

Wrapped tokens are mainly used to render non ERC20 crypto tokens compatible with the different DeFi protocols: staking, flash loans, automated marketing making, …

In other words, wrapped securities are not part of the game… yet.

As you may know, when a security is tokenized, the security token is subject to national legal regulations, on chain as it is off-chain, and is subject to securities registration requirements.

With the C-layer, we have started creating wrapped securities (wSecurity) beginning with wrapped equity (wEquity), that will allow any shareholder of a company to trade their equity within the DeFI. Obvisouly, we are working other financial instrustments to be released shorlty : wBonds, wDerivatives, and wFund.

The benefits of using a wEquity, are that:

· it lowers the transfer cost in gas;

· you can trade fractions of the wEquity (usually an Equity is sold by the Unit, and when you wrap it, you are able to buy fraction as it become an unregistered share);

· it is tradable with anyone, including investors not yet registered, on any DeFI protocols.

To cut a long story short, wrapped equities, transforms registered shares into unregistered shares. And that’s what we do with the C-Layer. By wrapping the securities, the shareholder will be able to trade his wEquity into the DeFI easily.

Anyone buying a unit or a fraction of this wEquity and would like to obtain proceeds (dividend, distribution, voting at the annual meeting, interest, coupon….) of his investments will need to unwrap the security, register himself to the issuing company (by filling in a subscription form or/and sending his KYC) in order to be entitled to one’s privileges and receive its.

A bit about the C-Layer protocol

In a nutshell C-Layer is a free and open-source protocol (MIT license) enabling the integration of compliance requirements into an ERC20 Token, such as, for example:

=>The user registry contract defining addresses that can either send or receive tokens;

=>Naming a compliance officer whom can freeze or seize tokens;

=> At the convenience of the issuer, the tokens can be locked (during a crowd sale or a voting session);

=> and many other specificities you can look up on our github.

C-Layer is powered by Openfiz

References:

C-Layer Explained

Uberrima Fides