Our Vision For Security Tokens With myStake
Why myStake is the leader in connecting real-world shares to ERC20 tokens
At myStake, we firmly believe that the usage of blockchain technology will deliver greater transparency, confidence, and ultimately liquidity to stakeholders in private and unlisted public companies. As the first commercial Ethereum blockchain digital share registry in Australia, our ambition is to give ownership back to the security holders, and allow them to instantly transfer and realise the value of their securities. The myStake platform achieves this through its market leading security tokenisation technology. With myStake, the share tokens themselves represent the company, and its holders the true owners.
One of the biggest concepts becoming mainstream in the blockchain world today is the idea of the “security token”. In response to the increasing skepticism around the fundamental value of utility tokens offered via Initial Coin Offerings (ICO), security tokens were borne from a desire to root token value by offering rights, such as dividend rights, or by linking the token to a real world asset. Their development and growth in popularity in the blockchain space is also a reflection of the growing recognition that regulation is going to have an ever-increasing presence in the space. Both concepts are areas in which myStake has been focusing heavily on when developing the myStake platform.
The Concept Of A “Security Token”
What is a security token?
A security token is a token that is a representation of a real-world asset on the blockchain. The benefit of doing so is unlocking all the benefits of the blockchain while at the same time affording holders the same legal and economic rights as any other security holder.
The significance of the rise in security tokens
Security tokens represent the next logical evolution of ICOs, whereby they are regulated the same as any other security. This is a reflection of the movement within the blockchain community towards greater regulation and governmental oversight in response to scams and other criminal activities. Compared to public securities, they still are distinct in that their ownership is still determined by the blockchain, with decentralised consensus underpinning it as opposed to a centralised exchange. Security tokens represent a fair compromise where the advantages of the blockchain may still be realised while still falling on the right side of regulation.
The other significance of security tokens is that they represent rights in a system, something a normal utility token lacks. These may be rights to the future cashflows of the entity, voting rights, to particular assets and so forth. In turn, security tokens represent a much more real stake and so may have a much more concrete valuation attached. For the increasingly mainstream investors looking to invest in blockchain technology-based companies like myStake, security tokens are a much safer and much more attractive investment.
How might security tokens be used?
By being token representations of securities, security tokens provide a means to bridge the crypto-world with the real-world. One of the biggest innovations of cryptocurrency is trustless transfer of title, which has significant applications for real-world assets. In any situation involving transfer of title, the use of crypto-tokens allow for ownership to be automatically recorded on the blockchain, independent and free from any party wishing to tamper with it. Further, it removes risks to the holder of the private key for the wallet which owns the security tokens may be the true owner.
Another significant shift that security tokens enable are bringing greater liquidity to otherwise illiquid markets. This increase in liquidity is due to the instant and trust less transfer of titles, as well as the ability to program smart contracts to automate the rules around those transfers. Examples of this in action might include derivatives on rights on titles, cashflows, or anything else that has value.
The most immediate area to apply security tokens is in both primary and secondary trading. With the efficiencies garnered from immediate and trustless transfer of title, and the ability to automatically reconcile changes to ownership, companies can perform primary issuances in real-time. Further than that, companies can incorporate their rules and agreements into smart contracts, automating the supply and management of the shares issued. Taking this even further, the use of security tokens representing shares allows for secondary markets to be formed for private and unlisted public companies. On this fashion, the aforementioned instant transfer of value and greater liquidity can be brought to private equities.
Making Security Tokens Mainstream with myStake
The myStake vision
Our vision for myStake has always been to build a platform that enables companies to deliver greater transparency to their stakeholders. Through greater transparency comes greater confidence, as investors and shareholders can make their own informed views on the company, and be able to ask questions where they feel gaps in the company record exist. Both transparency and confidence are essential in creating greater liquidity in private and unlisted equities, whereby investors know what they are buying. This is the reason why myStake has build a digital registry on the blockchain. It allows for transparency and confidence through a trustless data store that can be independently verified as well as a defensible immutable audit trail.
Security tokenisation with myStake
The blockchain foundation of the myStake platform has meant that it is at the forefront of security token technology. The tokenisation of all shares on the myStake platform enables a level of accountability beyond that of the platform itself — it is the shareholder who holds and owns the tokens. This detail is significant, as no longer does the shareholder in a private company have to rely on either the company, or the registry provider to keep their shareholdings up-to-date. The blockchain automatically does this for them. For the first time, a private or unlisted public company shareholder can have the same level of visibility into their holdings as they might with a listed public company.
The methodology myStake follows to tokenise shares is simple. Key to the process is the linkage between existing representations of the real-world assets, and the tokens themselves. To achieve this, during the process of on-boarding companies onto the myStake platform, real-world share certificates are uploaded, hashed, and attached to the tokens. Conversely, future share issuances have an associated certificate corresponding to the share tokens that were originally generated alongside it. In this manner, myStake takes the requirements of the real-world, in this case following Australian securities laws, and connects it to the on-blockchain share tokens.
To achieve all of this, the myStake platform is built using Ethereum, chosen as it is the most mature, popular, and best supported public blockchain. Critical to the success of the myStake platform is Ethereum’s support of on-chain smart contracts. In the myStake case, every company exists as a smart contract, whereby each share token issued is a unique ERC20 token to that company’s smart contract. That contract in turn is linked to each shareholder’s wallets and its interactions controlled by the directors of the company. As an automated tool for corporate governance, the company smart contract exists as a decentralised, automated, blockchain representation of the real-world company.
How myStake does it differently
myStake exists in the real world as much as the blockchain world. Management of private and public data is key. With myStake, all private data is stored off-chain, with only unique alphanumeric strings, called hashes, being posted to the blockchain. Private data includes share certificate, personal details, and company names and member information. This is a key advantage of the hybrid web 2.0/3.0 (where web 3.0 refers to the Ethereum ecosystem) approach, as nothing private needs to be on-chain, just reference-able on-chain. In this fashion, the myStake platform is able to make the most of best-practice web security and privacy management, while at the same giving companies the discretion to provide access to the private information that underpins the value of the share tokens themselves.
In comparison to other security token offerings, myStake differentiates itself through focusing on the whole value chain of helping companies manage their registers and equities. Another key benefit derived from the hybrid approach is accessibility towards existing companies joining the platform without needing any more familiarity than being able to use a modern web browser. Our concern at myStake has always been to build a system that delivers value today, and provides the on-ramp to whatever the system of tomorrow will be. With the existing myStake SaaS platform, we are determined to make blockchains both mainstream, and accepted as a superior alternative to traditional methods of maintaining and tracking company ownership.
In the vein of connecting the real world to the blockchain world, the myStake platform also connects to the existing regulatory environment. In the case of Australia, this is connecting to the Australian Securities and Investments Commission’s (ASIC) company registry.
Our aim is to demonstrate the potential of blockchain with real customers and real technological development. Progress thus far has been significant, with deployment of the myStake smart contracts to testNet, and a vision to post data to the public chain. While the current commercial release of myStake utilises a private chain to support its actions, successful deployment to testNet demonstrates what possibilities exist for the existing myStake platform. Separately, real companies today are tokenising their shares and using myStake to deliver greater transparency to their stakeholders. The myStake team is determined to continue rolling out the myStake SaaS product to customers, including start-ups, successful private companies, and accounting firms.
