The ERC-1400 security token standard has experienced recent updates. Importantly, the terms and system-specific functions of “tranche” and “partition” were clarified, along with several additional standards with different uses— which are all covered under the umbrella ‘ERC-1400’ standard.
The Recent ERC-1400 Updates Explained
The team behind Polymath, along with numerous external contributors, have made significant updates to the ERC-1400 security token standard, which was introduced just two months ago in October 2018.
The ERC-1400 is essentially an umbrella standard, under which many other standards with different roles, specifications, and responsibilities fall.
Originally, the ERC-1400 was based on the ERC-777 instead of the ERC-20. The initial reasoning centered around several improvements that the ERC-777 tried to capture when compared to the ERC-20.
However, the majority of existing security token standards conform to the ERC-20. To combat this issue, several modifications have taken place.
First, the ERC-1594 was updated to an ERC-20 foundation, rather than an ERC-777. In addition, the partially fungible token standard ERC-1410 can now be used with either the ERC-20 or ERC-777.
The new update also features some clarity regarding tranching.
How ‘Tranching’ and ‘Partitioning’ has been Clarified in the ERC-1400
The ERC-1400 aimed to initially introduce the idea of a partially fungible token which provides transparency to the partitions of a token holder’s balance.
The word “tranche” was originally used to describe one of those partitions. But due to the term’s previously accepted meaning throughout the capital markets industry to represent subsets of securities, the team behind the ERC-1400 decided to shift direction:
“Whilst this is similar to our aim with incorporating the partially fungible standard in the security token standard, there is a subtle difference. Each tranche in a security token represents the same underlying asset (with the same investment / risk characteristics) — instead, each partition represents differentiated ownership over those tokens, which are reflected in different transfer restrictions and related attributes.“
In this sense, tranches can partition a token holder’s balance into securities that are locked into a vesting schedule. In order to eliminate any confusion, the update subsequently renamed “tranches” to “partitions”.
Further, the ERC-1400 incorporates numerous additional standards: the ERC-1594 (core functionality), the ERC-1410 (partially fungible tokens), the ERC-1643 (document management) and ERC-1644 (controller token operation).
In this way, the different standards allow for companies to utilize security tokens with different priorities.
What do you think of the ERC-1400 and its recent updates? What will the future of the ERC-1400 look like? We’d like to know what you think in the comments below.
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