Introducing the Sygnum Security Token and tokenization smart contract suite
Sygnum is now making the code stack used in its institutional-grade tokenization solution open source, including the Sygnum Security Token – an ERC20 compatible token for tokenized securities, designed by and for regulated financial institutions – as well as the smart contracts used in Desygnate, our primary market issuance platform, and SygnEx, our secondary market trading venue.
Tokenization has been hailed as the “next big thing” for years (1). However, it has lagged other blockchain growth areas such as last year’s rise in DeFi applications (2) or the recent wave of institutions warming up to Bitcoin (3). One of the main reasons for this slow adoption is the lack of an institutional-grade, regulated tokenization offering which covers the end-to-end value chain of securitisation. This has changed with the launch of Sygnum Bank’s tokenization solution last November, comprising Desygnate, a primary market issuance platform and SygnEx a secondary market trading venue.
Sygnum Bank is now making its tokenization smart contract code stack open source, paving the way for even more adoption in the digital asset ecosystem. This code stack features the Sygnum Security Token and all other smart contracts used in Sygnum Bank’s fully integrated tokenization solution, such as fundraise contracts used for token offerings on Desygnate, exchange contracts used for trading on SygnEx, and stablecoin contracts used for DCHF.
Our smart contracts repository can be accessed here.
Sygnum Security Token
The Sygnum Security Token was specifically designed for bank-grade tokenization of assets. Built on the ERC20 interface, it has an extensive role model and features which make it suitable for trading on regulated exchanges and marketplaces.
A key feature of the token are extensions which enable it to fulfill regulatory requirements or enforce court rulings. This includes whitelisting and functions which support interventive measures from the service provider, such as pausing of the token contract, confiscation of funds and freezing of individual addresses.
Another feature of the token is the dividends extension which allows the issuer to distribute payments such as dividends or bond coupons in ETH or any ERC20 token, such as our DCHF stablecoin, to token holders at a specific date, in a seamless and automated fashion. The Sygnum Security Token also features a blocked balance in addition to the standard ERC20 balance. This is useful when blocking funds for a confirmed order on a secondary market, or held in escrow for other purposes (e.g. lending services), without the need to move them into a separate escrow contract. With the token remaining on the user’s address this helps to achieve legal clarity in terms of ownership, which is critical for tokens that constitute a security (e.g. shares).
The SygnEx contracts are a set of smart contracts that enable ERC20 tokens to be traded in a fully on-chain and peer-to-peer fashion. The contracts have been designed to serve as a secondary marketplace for security tokens, modelled after the requirements for an Organized Trading Facility (OTF).
With its integrated role-based rights model, it is ideal for the operation of a marketplace in a regulated environment, for example by ensuring that only whitelisted participants can place trades and by enabling the operator to intervene as required by regulations (e.g. to ensure orderly trading). Trading occurs through an on-chain order book, where orders can be placed, executed, or cancelled. Order aggregation and/or matching logic are built off-chain to interact with the contract and provide a seamless user experience.
Our SygnEx contracts provide the ability to effectively administrate a financial marketplace. Trading pairs can be managed and frozen if needed, and the overall market can be paused. It is also possible to use a specific role (of a “Trader”) to trade on behalf of market participants, which enables a brokerage-style service offering.
Why an on-chain order book?
There are different target operating models (TOMs) for a secondary market on the Ethereum blockchain. On the one hand there are order book-based exchanges that operate in a similar way to those in traditional finance, where buy and sell limit orders are managed in a central order book. This is accompanied by a matching engine which executes trades among competing bids and asks at the same price. There are also newer approaches based on liquidity pools, in the form of automated market maker (AMM) protocols, such as Uniswap or Balancer (4).
Such AMM protocols are relatively new and unproven from a regulatory standpoint (5). As such, the SygnEx contracts have been designed to support an order book-based marketplace. The next question which arises is whether this order book should be on-chain or off-chain. While operating off-chain reduces transaction costs and latency, an on-chain setup offers significant benefits in terms of interoperability, security and transparency. Third parties can also easily integrate their offerings with Sygnum’s trading infrastructure, supporting the development of an open finance ecosystem.
We look forward to having others in the digital asset ecosystem leverage our contracts, and join us in building Future Finance.
To be the first to get the latest news on Sygnum and the market, expert insights and industry research please follow us on Linkedin and Twitter.
This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual‘s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.