Blockchain developers are engineering a new token standard— the ERC-1400— which aims to strengthen the versatility and overall regulatory compliance of security tokens. While the token is still under development, it features the potential to bring security tokens to a much closer level to traditional securities, which would add serious legitimacy to STOs.
The ERC-1400, which will comply with ERC-20 and ERC-777 token standards, features various specifications that will be critical for the global adoption of security tokens. Two of the most important characteristics center around transparency and non-fungibility.
Transparency Resulting in Security
An important goal of the ERC-1400 will entail a transparent transaction process. A standard interface will provide the ability to check or monitor— in real time— the status of any transaction. The capability to reverse the crediting of tokens to a certain wallet will also be featured, a very plausible component for legislative requirements or to perform recoveries.
This ultimately means that— if this token is approved by the Ethereum community— any transfer of ERC-1400 tokens can be reversed or paused if legal issues (i.e. money laundering) should surface. The transparency seen in such a token standard aims to bring security and compliance, two attributes that are constantly sought after in the security token community.
Another important characteristic of the ERC-1400 is its partial-fungibility. In general, a non-fungible token (NFT) is a unique representation of some type of good or asset in token form. This results in different NFTs possessing different values, as their value can be tied to different real-world assets. Partial-fungibility follows the same criteria.
The consequences of partial-fungibility are significant. Ultimately, in a distributed network which lacks a central authority, partially-fungible tokens can use certain cryptography to verify the proper ownership and authenticity of assets. They also offer the ability to either accept or reject an incoming transaction. In the realm of security tokens, where financial securities or fractionalized ownership of real-world assets are sought to be tokenized in a compliant and verifiable manner, partially-fungible tokens look to bring some favorable solutions.
A brief summary of the specific benefits brought about by such emphasis on transparency and partial-fungibility are summarized below:
- A standard interface to query, validate, and justify success and failure of transactions
- Ability to force transfer (for legal and fund-recovery procedures)
- The capability to emit issuance and redemption in standard events
- The mandatory process of assigning metadata (i.e. identity info) to a token holder’s balance
- The ability to modify metadata and transaction parameters on and off chain
- Requirement of “signed” data to validate transactions on-chain
- Limitless range of asset classes across representable jurisdictions
- Compliance with both ERC-20 and ERC-777 standards
What Does the Timeline Look Like?
Every ERC token is an Ethereum Improvement Proposal (EIP) subtype. All EIPs have to pass various stages until they are accepted and implemented.
The ERC-1400 is still in draft stage, which means that it was approved by an EIP editor for submission to the Ethereum community for consideration and feedback.
The duration between draft stage and market implementation varies widely, but often entails various phases of edits, bug-fixing, further development, etc. It should also be noted that the entering into draft stage doesn’t necessarily guarantee an eventual final approval. For now, the future of the ERC-1400 is in the hands of the Ethereum community.
Do you think the ERC-1400 should be implemented by the Ethereum community? If so, will this token standard solve the major compliance issues faced by security tokens and STOs? We want to hear what you think below.
Image courtesy of Bitcoin Exchange Guide.
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