Ethereum ERC-1404 Protocol for Security Tokens Could Make ETH Price Rise Imminent
STO Explosion Imminent? Newly Developed ERC-1404 Security Token Could Very Well do That
There's a well-regulated future out there for companies and projects that take part in blockchain-based crowdfunding to realise their ambitions. And with regulators taking a more hands-on attitude towards the oversight surrounding Initial Coin Offerings (ICOs).
There's a lot of regulatory interest in that field, as well as with the recent establishment of legal precedents which define ICOs as securities under US Law, albeit with some initial contradictions, these have caused a dramatic surge in the amount of effore directed towards creating a standardized series of protocols which can be used to issue tokens that are able to meet the US' legal definition of a ‘Security Token.'
This is where TokenSoft comes in, operating as a white label token sale platform, it offers integrated custody solutions for ICOs that use its platform, and has recently published an Ethereum Improvement Proposal (EIP) that could establish an Ethereum-based security token standard, effectively allowing for the creation of an ‘STO Explosion' which could rival 2017's advent of the ICO.
I just published "ERC-1404: Simple Restricted Token Standard" https://t.co/AtlRz58apb
— Mason & Co. (@masonic_tweets) September 19, 2018
Ok, So Why Do We Need Standardized STO Tokens?
The Wild West era of Initial Coin Offerings have been over for some time, as we've seen. This is due to increased regulatory interaction with the blockchain and cryptocurrency ecosystem means ICOs that provide investors with a share in the prospective assets, profits or revenue of a platform, and are highly likely to fall under the regulatory scopes of US Securities laws.
This Security Token Offering (STO) provides users and businesses with a solution to the regulatory impact of evolving token sale legality. This would potentially provide startups and new blockchain ventures with the ability to offer investors with a financial product that falls under securities regulation without violating the current securities laws.
Unlike a conventional utility token, which operates to represent access to a network or platform, or give them the ability to purchase goods and services from a network, security tokens present either complete, or a fractional ownership in a particular asset. As an example, shares in a company, real estate or even intellectual property can be represented by a security token.
There are a number of benefits that security tokens aren't just applicable to blockchain-based crowdfunding and ICO market, however. Overall, security tokens have the potential to irrevocably transform the conventional paper shares system, enchancing its underlying efficiency and distribution internationally. There are a vast number of applications that smart contracts that we can use as an example, one being that they can be used alongside security tokens in order to optimize voting in corporate governance, providing an increased level of transparency.
Without any standard in place, however, it would be impossible for regulatory bodies, developers, Know Your Customer (KYC) providers, investors, wallets, issuers and exhcanges to collaborate in the same framework and create a functional ecosystem around STOs.
The ERC-1404 Open Standard
TokenSoft’s ERC-1404 standard is designed specifically for tokenized securities and has been developed with guidance and insight from securities law firms, major cryptocurrency exchanges and issuers.
Notably, the ERC-1404 standard has been created with banking and corporate governance law in mind and delivers all of the same functionality as the ERC-20 standard. Simply by adding several brand new lines of code to the existing ERC20 Token Standard, the TokenSoft development team has made it more possible for ussuers in order to enforce transfer restrictions.
This makes it more possible to allow issuers to control when tokens are transferred and how many, including under what conditions, this allows them to fulfill a major regulatory requirement.
The STO Standard Development Speeds Up
While TokenSoft stands out among the crowd, it's certainly not the only developer concentrating on creating some form of regulatory compliant securities tokens. One being the Security Token Standard initiative is an open source project, which aims to create a similar backwards compatible extension of the ERC-20 standard, and concluded a roundtable event which took place back in July.
Lawson Baker, Head of TokenSoft’s Special Projects Division, Project Zero, emphasizes the importance of security token development:
“By supporting ERC-1404, token issuers, exchanges and wallets can deliver a great user experience to investors while ensuring compliance.”