Polymath to Launch Blockchain Built for Tokenized Stocks

The Polymesh mainnet will go live next month with 14 regulated entities running nodes.

Sep 20, 2021 at 4:15 p.m. UTC
Updated Sep 20, 2021 at 5:23 p.m. UTC

Security token specialist Polymath announced Monday its institutional-grade blockchain built specifically for regulated assets – Polymesh – will go live next month, with a target launch date of Oct. 13.

Announced at Messari’s Mainnet event in New York City, the Polymesh network was designed to iron out the wrinkles encountered when shares in private companies are tokenized on Ethereum, for example. The Polymesh mainnet launch follows about a year of testing, including the last five months on an incentivized testnet with some 4,300 users, the company said.

Polymesh, a standalone blockchain built using Substrate, the same framework Polkadot is built on, will launch with 14 financially regulated entities acting as operators running validator nodes, including the likes of Entoro Capital, Tokenise and the Gibraltar Stock Exchange (GSX).

Stock tokens 2.0

Issuing tokenized assets on blockchains opens up a super-efficient realm of new possibilities. But Ethereum and its ERC-20 token standard weren’t really designed with regulated players in mind, said Graeme Moore, head of tokenization at Polymath. (Back in 2019, Polymath helped spearhead the security token-focused ERC-1400 standard with mechanisms to restrict its usage based on identity, jurisdiction and asset category.)

There are a number of non-starters on Ethereum for regulated companies looking to issue and trade tokenized assets, according to Moore, such as the risk of forks, the need for know-your-customer (KYC) checks, the headache for institutions caused by probabilistic settlement and also the current cost of using the Ethereum mainnet.

“Polymesh has a forkless architecture and also a concept of identity at the base layer, so you have to go through a KYC process,” Moore said in an interview, adding:

“It becomes computationally expensive on Ethereum to do something like restrict Party A from transacting with Party B over a period of time, or just simple transactions like updating a whitelist can cost $100 a day.”

As well as the public launch of the proof-of-stake Polymesh network with its native POLYX token, the startup is also announcing the launch of the Polymesh Association, a non-profit based in Switzerland. The Polymesh Association will be equipped with $8 million and 250 million POLYX to offer for grants and incentives, according to a press release.

Setting up in Switzerland also involved a nod from the country’s markets regulator FINMA, said Moore.

“In Swiss law, I believe you can either be a payment token, a utility token or an asset token,” said Moore. “So we went through FINMA’s whole regulatory regime, and they’ve determined that POLYX is a utility token.”

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Ian Allison is a senior reporter at CoinDesk.