A Security Token for Full Lifecycle Compliance

KoreConX Compliance

ICOs suffer from disapproval from not only the SEC but also several media that have banned ICO advertising. This disapproval seems justified, since many of the ICOs had no business plans, no product, no service, no credible team, and no roadmap for generating value. Of the remaining well-intentioned ones, the problem of passing regulatory scrutiny for a utility token is insurmountable since it is a utility in name while a security in intent and form. The only way out is to re-classify it correctly as a security token.

The Responsible Approach of the KoreToken Security Protocol

The ERC-20 protocol and the concept of smart contracts are steps in the right direction for many use cases and great for many applications. However, for the financial markets, we need a protocol that can meet all regulatory requirements. We have taken an approach that originates solidly from securities law. We recognize the paramount need for safety, security, and risk management. We know all parties in a securities transaction must be protected at all times – these are the investors, issuers, directors, officers, lawyers, broker-dealers, transfer agents, secondary exchanges, and secondary token holders. There must be complete traceability and auditability.

Blockchain, in creating an immutable record, guarantees validity and (perhaps eventual) finality. However, this validity is technical validity and finality is the committing of the block to the chain. In the securities world, validity and finality means a lot more. Technical validity is necessary but not sufficient. Validity should include contractual validity and legal validity. Similarly, finality is achieved only upon authorized approval of transactions. KoreChain, our implementation of blockchain using Hyperledger Fabric, addresses this broader and more comprehensive definition of validity and finality. The KoreToken protocol and specification includes modular methods to implement various aspects of business validity and finality.

A Comprehensive Specification and Implementation

The KoreToken’s specification and protocol address the requirements for data and methods for the complete lifecycle of a security token. KoreConX will itself use this specification and protocol to create its own security token as well create security tokens for its issuers. The protocol includes data and methods that fall into three broad categories: public interface layer, business layer, and governance layer. The methods themselves can be invoked by participants in various transactions.

The execution of security transactions, from issuance to corporate actions to exit, cannot happen in a vacuum. Registered entities are accountable for knowing where these securities are, who are their holders, and the state of their compliance. More than issuing a protocol, KoreConX has taken the unique approach of providing a full operational platform as well as partnerships with other participants in the ecosystem such as broker-dealers and secondary market operators. KoreConX itself is an SEC-registered transfer agent, meaning that we can offer full custodianship services for securities.

The KoreToken architecture is modular, allowing security token designers to compose entire securities transactions and implement various use cases. The heavy lifting of blockchain functionality as well as business-related functionality such as event management, transaction management and process management are handled by the KoreChain.

Please see the following Executive KoreBriefing on The KoreToken Specification and Protocol.

We will release the detailed technical whitepaper shortly.