Welcome to the new emerging financial order of IPOs 2.0 - STOs. Ethereum was known as the platform for launching hundreds of ICOs (Initial Coin Offerings), on the Ethereum Platform with the standard ERC-20. ERC-20 tokens are the Ethereum standard for which Utility Tokens & Dapps (Decentralized Applications) are launched. And Polymath is trying to build the ST-20 standard for launching STOs (Security Token Offerings), the new version of IPOs.
Polymath seeks to transfer trillions of dollars of securities (including Venture Capital LP Shares, Equities & Real Estate) onto the blockchain. The Polymath team led by CEO Trevor Koverko has ambitious plans for this idea and believes that Security Tokens will soon be a much larger market than Utility Tokens in 2019 and will capture a $10 Trillion Market in 2020. The irony is that Polymath is an Ethereum (ERC-20) Token.
Now, I want to make it clear that I am a fan of Utility Tokens and believe that they are not to be underestimated. While I am not sure of Trevor’s predictions and am bullish on the Utility Tokens Market and what much of it is trying to achieve through decentralization, I think that Securities Tokens are nonetheless an interesting market that should not be underestimated either. As of this writing, per coinmarketcap Polymath has a Market Cap of around $130 Million and is priced at around 53 cents per token. Since it has such a low market cap and such high ambitions I believe there is not much downside but a lot of potential upside for investors willing to take some risk.
Will the Securities Token Market reach $10 Trillion, I do not know. But what I do know is that very few people predicted in 2015 or 2016 what Ethereum and the Utility Tokens Market Value would become in late 2017 and early 2018 at its peak. Ethereum is now valued at roughly $520 per ETH and was valued at around $1300 at its peak with a Market Cap of roughly $130 Billion. The Market Cap of the ERC-20 Tokens was valued at around $500 Billion at the peak in late December. And it is very easy to underestimate the potential value of these digital assets. If the Securities Token Market reaches even $1 Trillion (10% of Trevor’s 2020 ST-20 Market Cap Prediction) then Polymath will be a very valuable asset in the near future.
The Advisory Board of Polymath has some notable figures such as Erik Voorhees (CEO of Shapeshift), Anthony Di Iorio (Co-Founder of Ethereum/Founder of Jaxx) and David Johnston (Chairman of Factom). But the most interesting to pay attention to is Patrick Byrne, the CEO of Overstock.com and the CEO of tZERO. This is not just an advisor, but an important partnership between Polymath and tZERO, a blockchain-based trading system for security tokens that complies with federal laws and regulators. In other words, tZERO is an exchange that can trade security tokens which will run on the Polymath network & both tZERO and Polymath need to comply with regulators so they can kick-start the market for security tokens which will need to follow SEC regulations very carefully as we will discuss soon.
Let’s have a deeper analysis of the Polymath Network now. Referring to the illustration below of how Polymath will be structured we see a few different parties involved.
o Legal Delegates & Developers work together on regulatory compliance & the smart contracts code to tokenize a given security on the Polymath Network (which will run on top of the Ethereum Blockchain)
o Verified Issuers & Verified Buyers on Global Whitelist with Legal Documentation
o Providers & Issuers who follow KYC laws and comply with regulatory bodies (SEC)
We know that 2017 was the year that more than 1500 ICOs were flying into the market left, right and center. We also know that regulators (SEC & CFTC) weren’t too happy that ICOs were operating outside the domain of regulation and legal standards that traditional IPOs and securities have to abide by. The SEC has also classified ICOs & cryptocurrencies within their purview and jurisdiction and has been cracking down on scams, warning the public of fraud & wanting exchanges to follow certain standards. In addition the IRS wanted to collect its due tax and since the SEC has subject cryptocurrencies and exchanges to securities laws, the IRS wants to tax the capital gains on cryptocurrencies. We saw the IRS request records from Coinbase on about 13,000 customers who have transacted more than $20,000 through their accounts. We see nations around the world eyeing cryptocurrency for regulation, such as South Korea clamping down on exchanges and China outright banning all-things-crypto. There are money laundering, terrorism funding and tax evasion threats of governments not responding at all to the growing market of cryptocurrencies.
There is no doubt in my mind that this theme of growing regulatory concerns and oversight in crypto will continue in 2018. Because Polymath is taking such a deep look at the regulatory environment and wants to really comply with regulators and be the first to tokenize securities on the blockchain, this will be an interesting project to look at and consider investing since it is highly undervalued to its potential upside in the coming few years. I like the partnership between Trevor Koverko and Patrick Byrne and believe it will bear very fruitful since both will work directly together tokenizing securities & trading security tokens with regulatory compliance in mind. Let the stampede begin.