Our mission is to deliver trust in digital assets, and make cryptocurrencies more accessible to institutional investors. In this post, we’re highlighting a set of tools for secure and streamlined handling of security tokens. We’re committed to this effort because we foresee a world where digital assets drive the global economy.
Recently, we’ve seen significant institutional interest in tokenization projects. Prior to this, we’ve helped tokenize both gold and bitcoin, and integrated our custody and wallet solutions with Harbor’s digital securities platform.
They provide a standard decentralized platform through which individuals, startups, and large financial institutions can interact. This is similar to how ERC-20 tokens became a way to raise funds.
They increase liquidity because tokens can be traded more easily and in smaller denominations than traditional securities.
Reduced costs of asset transfer with less intermediaries and dependencies.
Increased speed of asset transfer. Movement of blockchain based assets can be done 24/7 and depend primarily only on block confirmation times.
Increased accountability and transparency which makes it easier to audit token holders, approved addresses, and other important regulatory considerations.
Security tokens can be implemented on many different blockchains. However, we believe that Ethereum and Stellar have a significant head start in terms of development and adoption at this time. On Ethereum, security tokens are implemented by modifications on top of the ERC-20 standard; these can include transfer restrictions in the form of whitelisting, lockout periods, upgradability, and clawback procedures, among others. This makes security tokens a permissioned version of their utility token counterparts.
BitGo’s multisig ethereum wallet can help manage any security token. Key actions, such as whitelist additions, updating rules and freezing tokens can be managed between multiple users with policies. BitGo’s key recovery mechanisms provide additional security while managing administrative functions on tokens. To call smart contract functions using the BitGo multisig wallet, please refer to our post here. All data calls on a BitGo wallet require approval from another user on the wallet.
The BitGo Trust company offers qualified custody for both issuers and investors with institutional policy controls as well fiat (USD) storage. Once approved for listing, our custodial wallets can store either standard or custom security tokens. We believe that custody is the best way to store funds, as it optimizes for ease of use without compromising on security. BitGo carries $100 million in insurance protections for assets held in cold storage.
BitGo hot wallets are used by exchanges, funds, OTC desks and other partners. These institutions will easily be able to plug in support for a newly-issued token through the BitGo API. Hot wallets can be used to hold buffer amounts of security tokens for issuers so that they can handle transfers quickly.
The security token ecosystem consists of issuers, investors, token protocols, identity management solutions, alternative trading systems, custodians and broker-dealers (although at times, many of these roles are played by a single institution). With such a diverse set of ecosystem participants, it is vital to provide investors and issuers a user experience that decreases the complexity of participating in the security token market. BitGo’s OAuth flow in conjunction with the API can be used to link user accounts seamlessly.
The BitGo multisig business wallet currently supports multiple security token standards such as R-token, ST-20, DS-20, and CAT-20. Before these tokens are sent to addresses, we make sure that it is possible to do so by checking the restrictions which are placed on them in the smart contract.
Harbor’s all-in-one platform offers issuers and investors a place for compliant offerings with fully integrated investor verifications (KYC, AML and accreditation checks), document management and payment flows.The R-token framework, built on Ethereum, provides flexible smart contract rules for managing the transfer of security tokens. Harbor uses institutional-grade security and compliance with both BitGo Custody and BitGo multi-signature hot wallets.
The Securitize compliance platform and protocol provide a proven, full-stack solution for issuing and managing digital securities. The DS Protocol has the highest adoption rate in the industry, and multiple Securitize powered digital securities are already trading globally on public marketplaces, with many more in the pipeline. BitGo supports the DS protocol natively in it’s wallets and is working on a closer integration with issuers and investors of these tokens.
Securrency has developed a security token framework handling identity management, a customizable rules engine and API integrations to a whole suite of financial services. The CAT-20 framework is one of the first ledger-agnostic security token protocols that is interoperable across multiple blockchains and off-chain environments. Through infinXchange, users can easily access BitGo custody and wallet services to manage security tokens.
Polymath has developed a marketplace and token studio, making it easy for anyone to create a token with custom functionality and built-in tools for compliance. Issuers using the Polymath Token Studio can also connect with third party service providers, where BitGo is featured as one of the premium custody solutions for issuers and investors to store tokens. Tokens created through Polymath comply with the ST-20 standard, a backwards compatible extension of ERC20 built on Ethereum.
As security tokens mature, many of the platforms and standards discussed above will find additional ways to unlock value for both investors and issuers. This space is constantly evolving and BitGo is committed to adapting our engineering efforts to meet the needs of the industry. We will continue to work with our partners to fine-tune user flows for buying, trading and storing securities so that all crypto aspects are handled seamlessly and securely. If you are an issuer, investor or platform looking to realize this change, please reach out and work with us!