Deep Dive Project Analysis — Polychain
In an industry where there is very little regulation and where most projects look at ways of ducking regulatory oversight for as long as possible, Polymath is a project that aims to work within the legal framework and bring one of the most important part of finance industry to the crypto world — securities. Polymath aims to tokenise securities in a legal way.
What is a security?
Unlike a utility token, which provides access to a project’s network and resources, a security token is like owning stock in a company. Utility tokens are like credits that allow you to pay for the network’s access. You buy these tokens, pay for their goods / services and that is it. But security tokens allow you to have an ownership in the company. This means you get a share of their profits and the value of your token is determined by the assets and operational metrics of that company — very similar to a stock market valuation of a company.
Polymath aims to tokenise all the traditional securities like Real Estate, Equities and venture capital. Just like Ethereum ERC-20 was a platform for distributed apps or DApps, Polymath aims to create ST-20 as a standard for security tokens.
As of now there seems to be a mix of ideas about what Polymath is building. Since a security token cannot have any liquidity without an exchange that supports security tokens, and they still haven’t enabled any company to tokenise their securities till date, there is only one thing we can assume — that they enable the creation of a security token via their Marketplace. In their whitepaper, they mention marketplaces which will have developers and legal experts who will guide and service the clients who want to launch a security token. This seems like a rather flimsy value proposition.
Another red flag is that Polymath itself is not a security token. Since it is being traded freely on crypto exchanges, if you buy Polymath, it doesn’t give you the ownership in the company behind it. In fact, their whitepaper states that their marketplace will reward players using Polymath tokens. This makes it a utility token.
Only thing they have been able to do is integrating KYC process in the tokens themselves. This way they make a whitelist of Ethereum addresses associated with accredited investors who can buy the security tokens.
Since there is hardly any regulation for how the tokens are categorised and many tokens do not want to be categorised as a security token for the sake of avoiding regulation, Polymath sets itself apart because they want to be regulated. In a sense, they want to tokenise security investment that is already a market worth trillions of dollars.
Polymath team did not hold an ICO since the regulation is quite unclear. They only sold their tokens to accredited investors via a private sale. This means they do not want to dabble into anything that will seem like a grey area from a legal perspective.
Another feature of Polymath is that it aims to comply with local laws of different jurisdictions and authenticates KYC for all their users. This is important as we saw a global crackdown on ICOs by banning them in many countries.
However, if Polymath complies to the law completely, it could mean most crypto enthusiasts — who are not likely to be accredited investors — will not be able to participate in the projects that Polymath supports. This goes against the very essence of decentralisation and the ethos of democratisation.
Polymath team is led by Trevor Koverko, whose stellar profile lends so much credibility to the project. He has worked with various Silicon Valley companies and been an early adopter of Bitcoin and crypto in general.
The overall team is well balanced and has some experienced professionals. Their star studded advisory board is what attracts most attention on their team page.
This is a big red flag. Not only is there no roadmap on the website, a Reddit thread claims that they announced in their Telegram group that they do not have a roadmap so that they can “pivot on a dime”. This doesn’t sound right from a technology company.
Currently there are no exchanges that deal in security tokens and since Polymath helps in creation or tokenisation of securities, there is virtually no liquidity.
Polymath is an interesting project because it tries to combine the cypto world and the traditional finance sector. However, it will be severely limiting the scope to existing regulation that is meant for the wealthy few.
Learn more about Security Tokens such as Polymath in our Cryptocurrency Community.