OECD Report — The Tokenisation of Assets and Potential Implications for Financial Markets
Polymath and ERC1400 Mentioned in OECD Report
The Organisation for Economic Co-operation and Development (OECD) recently put out a report on The Tokenisation of Assets and Potential Implications for Financial Markets.
Link to Download the Full Report
Link to Download the Highlights
In this 58 page report, they discuss the tokenisation of assets; the benefits, risks and challenges to its wider adoption; the potential disruptive effects of tokenisation on financial markets; implications for policy makers; and explore tokenised central bank currencies and stablecoins as they relate to tokenised securities.
It’s encouraging that the OECD cited ERC1400 when discussing standardisation in security token technology. We must be doing something right! From the report:
Box 2.1. Industry initiatives for standardisation of token protocols: ERC1400, CMTA
In the early days of tokenisation, each token created was supported by a new, unique smart contract on the Ethereum blockchain. Lack of consistency in the engineering of the smart contracts used in each bespoke token ecosystem increase friction with stakeholders like custodians or exchanges who had to perform a technical due diligence.
To that end, an industry-led initiative has been promoting the development of a standardised framework for the tokenisation of securities, which resulted in the ERC1400 standard. The standard is programmed to automatically enforce specific conditions that relate to legal and regulatory requirements applicable to securities in different jurisdictions and allows for automated compliance of the tokenised asset with pre-defined requirements built in the code.
Indicatively, identification of investors and whitelisting is automatic and investors are able to invest only if they fulfil certain suitability criteria in line with the ones set by the regulator, depending on the jurisdiction. Securities asset servicing and corporate actions such as dividend distribution or lock-up periods are programmed in the standard and apply automatically without any further intervention. Importantly, the use of standardisation reduces the burden of technical due diligence for all stakeholders participating in the same ecosystem (potentially including regulatory authorities).
While the ERC1400 is not the only standard available for asset tokenisation, the direction of the industry towards the standardisation of smart contracts and protocols is expected to assist the proliferation of asset tokenisation as a practice.
In addition to citing ERC1400 The Security Token Standard, the OECD also acknowledged Polymath’s Chief Product Officer, Thomas Borrel, as a contributor to this report.
A conclusion we agree with:
Further adoption of DLTs in the financial markets would be incentivised by measurable efficiencies and related cost reductions that are sufficiently large to cover the investment required for the transition to an on-chain environment; increases in safety, resilience and trust; reduction in complexity and disintermediation; by the absence of existing trading infrastructure for the asset or the existence of large inefficiencies in such markets.
About Polymath
Polymath makes it easy to create and manage security tokens. The platform simplifies the complex technical challenges of creating a security token and aims to bring the multi-trillion dollar financial securities market to the blockchain. Learn more at https://polymath.network
Joining Polymath
Are you interested in joining the security token revolution? We are always looking for high quality talent. Check out our careers page at https://polymath.bamboohr.com/jobs/ to apply!
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