Crypto assets are gaining in popularity almost every day. However the vast majority of global investment capital is still tied up in traditional asset classes like stocks and bonds. But what if you could buy stocks just like you bought bitcoin? Or what if you could fund a venture capital investment by buying tokens? That’s the question posed by Polymath, an Ethereum based project that aims to bridge the gap between blockchain assets and traditional investments. But how can they deal with the issues relating to financial regulations and restrictions? Aren’t those restrictions against the core philosophy of cryptocurrency? Read on as we go over Polymath and see what this project is really all about.
What is Polymath?
Polymath is a cryptocurrency project that wants to offer a method for traditional investment assets to be tokenized and tradable in a manner somewhat similar to other blockchain assets. They plan to do this through what they call an STO, meaning “security token offering”.
The goal of the project is to eventually have an ecosystem and protocol where verified investors (more on that later) can purchase and trade tokenized securities that are equivalent to other types of investments like stocks, equity, and venture capital funding.
The platform uses its own ERC-20 token, POLY, that is used to pay for various fees on the network, and in some cases can be used to purchase securities directly. The project has a total of 1 billion tokens which were initially minted and no additional tokens will exist in the future. Today, POLY tokens are trading for just around one dollar each. With the circulating supply at just under 240 million, the project has a market cap of just around $240 million. It’s currently sitting within the top 100 cryptocurrencies that are listed on coinmarketcap.com.
Legal Compliance a Serious Hurdle
These days a major debate that is ongoing within the cryptocurrency world is what types of coins and tokens qualify as securities, and which do not? Many new projects have been very careful in their wording to avoid using words like “ICO”, “investment”, and so on. Many projects have instead taken great care to strongly imply that their currency is a utility token, and their initial sales are often called “token generating events” or other such alternative phrasing.
Polymath, on the other hand, wants to implicitly clarify that tokens created through their STO protocol are absolutely, undoubtedly securities by every definition and legal standard. Their own POLY tokens, however, are defined by Polymath as being utility tokens as they are used to pay for various fees and services.
In order to comply with pre-existing laws relating to securities trading, a number of steps need to be taken. For instance, all buyers that wish to purchase a security token must first pass KYC verification. According to the white paper, KYC verification will be done by various third-party partner groups. A potential investor will need to pay a fee in POLY tokens in order to undergo this verification. Once an investor is verified, their Ethereum address will be permanently linked to their real ID, and will then be eligible for purchasing some security tokens.
Why only “some” tokens? The white paper outlines that not all investors will qualify for all tokens. For example, a citizen of country A may not be able to legally hold a security issued by a company in country B. Or certain types of investments may require accredited investor status.
This is quite obviously very different from how normal crypto assets operate. There are no restrictions on what address can receive what token on the Ethereum network today. So in order for these restrictions to work, the STO created tokens will need to operate as a different type of smart contract that runs entirely within the Polymath protocol.
There is some degree of flexibility in the security tokens, however. The white papers suggests that it will be possible for security token holders to trade or sell their tokens on a decentralized secondary market. However, those that wish to purchase the security token will still need to have an approved Ethereum address that passed KYC, and their address can still only hold tokens that are compatible with their user profile, such as their nationality or whether or not they are accredited.
Defying the Ideology
One of the most important aspects of cryptocurrency is that it was intended to be borderless, free to use, and open to anyone and everyone.
Take bitcoin, for example. Anyone can get a bitcoin wallet, and send bitcoin to anyone else in the world without any need for passing an identity check, or confirming how much money they have in the bank, or from which country their passport was issued.
Specifically, the white paper states in no uncertain terms that one of it’s main functions is to:
“[Enable] individuals and institutions to authenticate their identity, residency, and accreditation status to participate in a wide range of security token offerings (STOs)”
What Polymath is trying to do is comply with a large and complex set of laws that were designed to greatly restrict the flow of capital ownership. As a result, what they are creating will in many ways not resemble cryptocurrency whatsoever. Instead, it appears that they will be creating a walled garden of sorts that just happens to use Ethereum to keep its digital gears turning.
This begs the question, is Polymath a true “cryptocurrency”? Perhaps it’s POLY tokens are, in that they have no restrictions on who can hold them. But when it come to the security tokens, one could argue that they are not true cryptocurrencies and are instead simply smart contracts that exist within the Polymath protocol.
While it may sound exciting to suggest that stocks can be tokenized and then bought and sold on a open market (free from brokers and other middle men), the truth is much less revolutionary. What Polymath is trying to do seems instead to be more evolutionary.
With an ICO, anyone can potentially get involved and invest in a startup company. Once they have received their coins or tokens, they can freely trade them however they see fit. Even if an ICO had a region restriction, the tokens can still be freely traded once they are distributed. Polymath intends to create a system where it’s securities will be permanently restricted from being sent to or held by anyone the platform deems to be unauthorized.
How to Buy Polymath POLY Tokens
You are not able to purchase POLY with “Fiat” currency so you will need to first purchase another currency – the easiest to buy are Bitcoin or Ethereum which you can do at Coinbase using a bank transfer or debit / credit card purchase and then trade that for POLY at an exchange which lists the token.
Make sure you use our link to signup you will be credited with $10 in free bitcoin when you make your first purchase of $100.
Once you have purchased Ethereum, you can trade for POLY tokens at the following exchanges:
On the surface, Polymath sounds like it has an interesting idea. That being, combining traditional investment types with blockchain assets. However, the idea quickly falls apart once you get into the nitty-gritty of all of the various compliance issues and hoops that one must jump through in order to even begin to be eligible to trade only a handful of offerings.
It is also very likely, if not absolutely certain, that a wide array of security tokens that will be listed on Polymath at some point will require investors to be accredited, or to be from specific countries. These kinds of restrictions are entirely against the general ethos of cryptocurrency. Instead, it’s entirely possible that if Polymath launches as described, then it will become a walled garden for the wealthy elite and practically no one else.
Not accredited? Shove off, pal. From the wrong country? Beat it. You aren’t welcome here.
Will things really be that draconian or elitist? At this point all we can do is wait and see how things unfold. There is a chance that things won’t be so grim. It might even be a way of opening up new investment markets for casual investors at some point in the future.
But with the way things are described in the white paper (especially when it comes to determining whether one is accredited or not), this could absolutely be the reality – a sealed off, walled garden where only the elite are allowed entry. Does that sound like cryptocurrency to you?