Polymath (POLY) is a protocol to facilitate the primary issuance and to restrict the secondary trading of blockchain security tokens. Polymath uses a blockchain-based protocol that provides a suite of tools to coordinate and incentivize participants to collaborate and launch financial products on the blockchain. By creating a standard token protocol which embeds defined requirements into the tokens themselves, these tokens can only be purchased and traded among verified participants.
THE DEMAND / THE MARKET
Current models associated with partaking in primary or secondary offerings of securities can be very cumbersome and complicated for the lay investor. Many will argue that these regulatory steps were taken to protect the average investors, however, they have become a barrier to the capital flow, and thus, a barrier to growth and innovation. The initial public offering (IPO) provides various restrictions on both large and small companies that in many ways restricts the funds that can be raised by such companies. This leads to missed opportunities. For a company to go through an IPO they must meet regulatory requirements for which many smaller businesses fail to meet. Thus, leading to missed opportunities to raise revenue or to achieve the liquidity that would be only possible during an IPO. This is detrimental not only to the company, but also to the investors, because they fail to invest in companies during their early high-growth stage of development.
The global securities market capitalization of listed domestic companies reached approximately $80 trillion USD in 2017 (Figure 1), and with the rapidly growing global economy, it may reach just below $100 trillion USD by the end of 2018. The stock market capitalization was about 55% of the world GDP in 2015 . The global initial public offering (IPO) activity for 2017 (most active year since 2007) was about 2000 IPOs raising about $340b USD (Figure 2). In comparison, in 2014, there were only 2 (initial coin offerings) ICOs, for which a total of about $16m USD was raised, in 2017, there were 871 ICOs for which about $6.1b USD was raised (Figure 3), merely 1.7% compared to the global IPOs of the same year. Thus far, only less than halfway through 2018, there have been 731 ICOs which about $4.5b raised. One can argue that this exponential growth seen in ICOs is promising and can be attributed to the creation of a method that easily allowed for the lay investor to participate in the blockchain technological boom. Furthermore, although the total funds raise via ICOs in 2017 was only 1.7% of IPOs, it still sparked the interest of Wall Street, as this created a new way for business owners to raise funds, while in some way circumventing some of the regulatory requirements in place by SEC regarding the primary and secondary offerings of companies.
Enter Polymath platform. They state that their goal is to create a blockchain platform, that provides legally compliant securities offerings with a network of services designed to lower associated transaction costs over time. They state that they hope to:
- Provide a decentralized protocol for trading security tokens
- Enable individuals and institutions to authenticate their identity, residency, and accreditation status to participate in a wide range of security token offerings (STOs).
- Allows legal delegates to bid on new issuances to represent issuers on offerings to be done in a regulatory compliant manner.
- Match issuers with developers who can translate issuers’ Security Offering parameters into secure code that generates ERC20 compatible tokens.
When a company wishs to sell security tokens, in hope to raise capital, they would contact the Polymath team, providing them with their name, ticker, and other public information to be stored on the public blockchain. This allows for a creation of what they are calling an ST20 standard security token. The tokens will be held by the issuer until all the legal checkmarks have been met, prior to transference of tokens to the appropriate company. The company is also able to use the platform to share documentation with the public, all which will be timestamped by Polymath. The company can also set jurisdictional limitation regarding who can hold the security token offering (STO) and if they so choose, they can use the legal team of Polymath to seek legal advice regarding this matter. Note that each STO is its own smart contract. This contract ensures that all security tokens related to that contract are traded in accordance with any rules that result from the compliance process, and the smart contract can be updated by the issuer to reflect corporate events and the like. These contracts use the KYC registry contract as an authority on identity/address pairs. This allows investors to participate in multiple offerings without going through the KYC process multiple times, tracks that investor’s limitations, and provides for the updating of the KYC process for an investor as the KYC provider deems appropriate . When a security is created by Polymath, in it, it will hold requirements that a holder of the tokens must meet, prior to purchasing of these tokens, through their KYC protocol. Once you have been approved, you may participate in purchasing any token as long as you fit the requirements set. So, to be clear, the KYC is baked into the protocol.
The tokens purchased by the investors can be bought or sold on any supporting exchange, as Polymath is an open protocol. This is an important fact to keep in mind. Polymath as a platform, is a facilitator of issuing securities-backed tokens and not the platform for which tokens can be exchanged.
Polymath does not provide any specific roadmap; however, they have broken down their developmental stages into 5 different phases:
- Release of whitepaper
- Early advisement
- Integrate with leading projects to enable KYC block and ecosystem
- Launch Polymath Platform
- Announce first Polymath-based securities token issuers
We believe they are currently in phase 4/5, as they do have a working platform at this time.
POLYMATH’S TEAM AND ADVISORS
The team is led by CEO Trevor Koverko, former NHL draft pick of the NY ranger, turned Silicon Valley investor, early investor of ShapeShift, turned founder and CEO of Polymath. The rest of the team is impressive as well. They have done a great job marketing their product thus far. I will not dig into much deeper into their team, that is something you could do on your own time (Figure 4).
Although the team is impressive, Polymath’s strength comes from their group of advisors. For example, the newly added Michael Hyatt, co-founder of BlueCat and one of Canada’s top entrepreneurs and a technology visionary . They also have Anthony Diiorio, Ethereum co-founder and CEO at JAXX (Figure 5).
TOKENS and SUPPLY
Initially, there will be 1 billion POLY tokens, ERC20 standard Polymath (POLY), will be minted and no more after that. The POLY tokens are used as a transfer of value within the platform. Issuers are able to post bounties in POLY tokens, in order to encourage legal delegates and developers to bid on providing services towards the issuance. Highly complex securities offerings will likely require a greater amount of POLY. Factors that will determine the complexity include issuer jurisdiction, investor jurisdiction(s), accreditation requirements, and token transferability limits. The higher a bounty the issuer places, the more likely it is they will receive a wider variety of bids from legal delegates and developers. Developers will earn POLY for creating STO contracts. In order to incentivize developers to create security token contracts, they will be required to have these POLY fees locked up for a minimum of 3 months after the end date of the security token offering. KYC providers pay a POLY fee to join the network. Investors seeking to purchase security tokens will be required to pay a POLY fee to KYC providers for verification. Legal delegates are able to earn POLY tokens by (i) proposing bids on security token issuances and (ii) being selected by the issuer to take responsibility for the issuance. Along with their bids, they can specify how long they are willing to lock up their bounty.
There was no ICO, only a private sale of the tokens. They raised $58.7mUSD.
- Total supply: 1,000,000,000
- Circulating supply: 275,000,000
- Pre- & Crowdsale: 230,000,000
- Team: 170,000,000 Other: 600,000,000
- ICO token price: 1 POLY = $0.040USD
KEY PARTNERSHIPS AND ASSOCIATIONS
Polymath has partnered with Crowd Machine in hope to boost adoption of security tokens. They have also partnered with Trustroot Partner and Crowdfund X (digital AI marketing). They have also have partnered with CORL which is a revenue-sharing platform on blockchain. To learn more about these companies please see below:
Trustroot is a blockchain protocol that protects individuals and businesses from fraud and theft within the cryptocurrency community. The protocol verifies the identity and reputation of blockchain businesses to help users avoid scams, phishing attacks, and other fraudulent activity.
CrowdfundX is a FinTech marketing firm that uses Artificial Intelligence (AI) and digital marketing to help our clients acquire retail investors and shareholders online at scale. CrowdfundX is the creator of Dara, the world’s first AI Investor Marketing Engine.
The most promising of the partnerships is with tZero. tZero seems to be the exchange being developed to allow for the public to buy and sell security tokens. If you look closely you can see that there is some overlap between the teams of Polymath and tZero. tZERO, a subsidiarity of Overstock.com, focuses on the development of various blockchain supported solutions for the capital markets. The company’s present offering consists of brokerage services, stock inventory management systems, smart order routing solutions through a network of more than 100 brokerages, a 24-hour trading platform, as well as other services. The company handles traditional equities but is planning on scaling its operations by integrating a token trading system for crypto securities.
COMPETITORS AND KEY CONCERNS
Although, their marketing has been very impressive, they seem to be burning a lot of funds with traveling, setting up community meetings and marketing. This is a concern. However, again, the concept of Polymath is very simple, and considering they are outsourcing most of their work, there needs to be very little spent on developing the actual product.
There is no exchange to security tokens to be traded on. There are significant regulatory concerns surrounding these exchanges, which is most likely the reason why Polymath quickly changed their tune regarding being both the platform for the generation of tokens and the exchange, to being just the provider of the tokens.
Competition. They have an advantage of being first in Canada, however they have a significant competition, such as:
- Harbor: an open sourced platform that allows traditional investment classes to migrate onto blockchain. The team is made of David Sacks, CEO, General Partner @ Craft Ventures, previously COO of Paypal, Founder of Yammer, CEO of Zenefits. This team is led by some very impressive group of people.
- Securitize: regulatory compliant cloud service solution for the tokenization of securities, enabling tokenization of funds, companies, or other entities. Led by Carlos Domingo, CEO and Chairman, Managing partner at Spice VC, Former CEO at Telefonica R&D o Templum: Templum is a regulatory compliant solution for security token issuance and subsequent secondary trading. Templum Markets (formerly Liquid M Capital, acquired by Templum for $1.3M) is a registered alternative trading system (ATS) and a broker-dealer firm. Templum offers a platform that both enables the initial sale offering of security tokens and operates as a marketplace in which secondary trading can take place by issuers and investors.
- Securrency: The company’s platform consists of several products: (1) Securrency™ — facilitates regulatory compliance and enables the trade or transfer of tokenized securities, (2) RegTex™- provides regulatory compliance services such as, KYC/AML reporting, validation of investor accreditation and eligibility, reporting, and tax submissions, (3) SmartContraX™ — a blockchain smart contract development service, (4) InfinXchange™ — provides standard interfaces for payments, exchanges, asset pricing, and other transactions.
- OpenFinance Network: open-source platform specializing in secondary markets for alternative assets. The OFN team has been working together since 2014, offering trading, clearing and settlement services. Recently, the team has refocused their attention on blockchain solutions and has developed a compliant standard by which tokenized securities can be exchanged and eventually issued on the blockchain. o Oderbook: decentralized exchange that automates the process of investor verification through a specialized token. The token, named RAP, ensures that ICO and other crypto related transactions are compliant by cross-referencing local jurisdictions requirement with its database of RAP token holders’ credentials. Stephen Pettibone is their COO, she was a former VP of compliance at NASDAQ.
- To get a more detailed review of their competition please refer to this following article written by Tatian Koffman titled, “Your Official Guide to the Security Token Ecosystem”. This is a list that is growing and will continue to do so. However, Polymath likes to compare itself with traditional methods and ethereum and they like to say that there are services that can offer for which the later two lack (Figure 6).
Security tokens will the story of 2018 and 2019. There is no question about that. We previously described the benefits of tokenized securities, which include increased liquidity, fees, and improving market efficiency, and bringing the issuers access to a greater pool of capital. Kevin O’Leary of O’Leary Funds, recently stated on CNBC that there will be at some point a $400m STO taking place. Who else could provide such services other than Polymath and the few others listed above. Once the first one goes through, the rest will follow. Similar to the initial boom of ICOs, you can expect to see the same with STOs. All of these platforms will state that they are working with the appropriate bodies to ensure all requirements are met. Thus, investors can expect a significant return on investments when it comes to STOs. We believe is another driving factor for adoption, will be the fact that traditional investors will also be able to use old valuation models and apply them to STOs.
In 2018 and 2019, you can expect to see a significant growth in the blockchain community thanks to the development of platforms that allow for the total amount of global capital that is sitting on the side-lines to have a method of investing in different assets and asset classes for which they may not have been able to do so up until now. This is when you can expect the blockchain marketplace to begin to make headways towards the trillions of dollars. After reading this, you should ask yourself, if investors can invest in STOs and ICOs, why would they want to invest in the traditional IPOs? Does this mean the beginning of the end of what we know as the stock market? Perhaps now you are beginning to see the potential of blockchain technology.
At the time of writing this article POLY is trading at $0.95USD, with a market capitalization of $266m USD. The total circulating supply is 276.4m of 1b total supply. The ATH of POLY was $1.76USD. We believe that POLY will trade at a $2-$2.5USD within the next 8-12 months. However, their growth is largely dependent on various factors. They require an exchange for the STOs to be traded. We sense that POLY may not be the best project offering STOs, however they are the most well marketed one, therefore, you can expect them to have a more significant growth compared to the others. We are long Polymath and hope to hold our position until our targets are met.