Polymath, a security token platform, has partnered with Loopring to test peer-to-peer trading of security tokens on a decentralized exchange.
Polymath announced on Wednesday that the “successful” tests—which utilized smart contracts on Loopring’s DEX protocol—showed that only authorized trades of ST-20 security tokens were able to complete, while unauthorized trades could not be executed.
The ST-20 security token standard developed by Polymath is an extension of the more generalized ERC-1400 standard that initiates the capability to limit transfer of blockchain tokens. “They can only be held and traded if certain criteria are met,” the company said.
Providing specifics of the test, Polymath stated that it traded a digital currency dubbed “wrapped ETH” with an ST-20 token called Cammazol, with an authorized transfer for the succeeding token (view it here) and an unauthorized one declining to transfer (view it here).
Graeme Moore, the vice president for marketing of Polymath, said that the two companies initiated the test to show that security tokens can be traded in a compliant manner, even on decentralized exchanges.
“What we are showcasing here is that decentralized exchanges and security token issuers have the ability to maintain compliance through the standardized protocols that Polymath and others have built. And, in fact, security tokens make it easier for issuers to follow regulations, when compared with the legacy capital markets system using paper share certificates.”
Specifying how it works, Polymath stated that in every attempt of trade, the token gets the attention of its transfer manager module and efficiently asks, “Can this trade be executed?” Thereafter, the transfer manager verifies if the buyer and the seller are authorized to trade the token through a whitelist controlled by the token issuer. The trade is only executed if the answer is yes.
“This is how tokens are able to maintain compliance in the secondary market throughout the entire life-cycle of the token,” Moore explained.
“Loopring’s focus on user experience with their protocol was a great match for Polymath powered ST20 tokens which support an enhanced feature set on top of ERC20 to allow transfers to be fully validated before execution,” said Adam Dossa, the director of technology at Polymath.