As “security token offerings (STOs),” which refer to issuances of cryptocurrencies using traditional assets, such as real estate, stocks and paintings, as collateral, have emerged as an alternative to initial coin offerings (ICOs) for the cryptocurrency industry, STO-related technology platforms and communities are revving up.
According to related industry sources on Nov. 25, Kodebox is to disclose its STO platform “Kodechanin” at the BUIDL Seoul 2018 to be held at Le Meridien Seoul for two days from Nov. 29-30.
Kodebox, which attracted investment from Kakao Ventures and Dunamu & Partners, formerly known as K Cube Ventures and Dunamu, early this year, is developing blockchain-based technology platforms. Kodechain, led by Kodebox, supports issuances and transactions of security tokens.
In particular, a security token is required to meet all regulations related to not only the capital market law but also user authentication, known as Know Your Customer (KYC), investor qualifications and anti-money laundering (AML). Accordingly, Kodechain is being developed to ensure that the token itself, not the exchange where it is traded, conforms to the related laws and regulations.
Moreover, some security tokens, which have been issued so far, follow the ERC20 token standards issued by Ethereum. However, there is a consensus that the level of regulatory compliance of security tokens cannot be satisfied with the ERC20 alone.
For this reason, the Ethereum camp has recently begun discussion about “ERC1404” that reflects the characteristics of security tokens. According to Hashed, ERC1404 is a new Ethereum issuance standard that sets a limit on remittance unlike utility tokens which were mainly utilized in existing initial coin offerings (ICO).
An official from Hashed said, “There were also sessions that compared utility tokens and security tokens and that introduced Ethereum’s new issuance ERC1404 standard at the San Francisco Blockchain Week that was recently held in the United States. As it was suggested that most of platform coins to be released in the future can be categorized as security, an active discussion about the ERC1404 is in progress.”
Since STOs can be traded over the counter between individuals beyond national boundaries, legal and institutional clarity is a must. For instance, Bithumb, South Korea’s largest cryptocurrency exchange, recently announced to set up a security token exchange in the U.S. through a technical partnership with U.S.-based fintech firm SeriesOne but there should be proper domestic legal system in place to allow Koreans to make an investment in security tokens.
An official from the global STO platform industry recently posted a message on Meetups, saying, “The global STO trend is spreading too fast to wait for the South Korean government’s guidelines. Ultimately, related companies, including exchanges, in South Korea will also need to start STO services through their overseas subsidiaries in the early years, excluding South Korean investors, and then expand the services starting with domestic institutional investors in the first half of 2019.”