Graeme Moore on Polymath's security token blockchain

0:01And today on Blockchain Interviews, we have Graham Moore, the head of tokenization at Polymath. Graham, thanks so much for being on the show. It's a pleasure to see you again and to have you on the show today. Thanks Ashton, it's good to see you, too. I haven't I haven't seen you in

0:19maybe at least a few weeks, which in blockchain terms is a few years. So, good to see you again. Totally. And the you know the industry is still moving very fast. Polymath has a lot of updates since our last interview. It's been quite longer than a few weeks. I'm excited to learn about what you guys are now working on. If you could give a little introduction to what is

0:39Polymath and then what is the Polymesh network that you guys are now working on? Yeah, so Polymath makes it easy to create and manage security tokens. So, if anybody is not familiar with what is a security token, security token is a financial security on a blockchain. So, something like a stock, a bond, a revenue share agreement, a derivative, a

1:01piece of real estate. That's what a security token is. And so, we make it easy to create and then manage those on an ongoing basis, especially in terms of regulatory compliance. So, that's kind of one of the big things that we were focused on early on is, "Okay, cool. We have this awesome thing called blockchain technology. Let's see if we can create financial

1:25securities on it." And so, there were a few people that kind of started talking about really on, Polymath included. And we went, "Okay, wow. There's really nothing with this blockchain tech that allows somebody to do this in a regulatory compliant way." And the main thing being transfer restrictions. So, let's say you wanted to create a financial security and you issued it to somebody

1:48with an ERC-20 token and you KYC and AML that person and you said, "Okay, yeah. No, I know that they are as I say they are. That's awesome. I've satisfied all my accredited investor requirements, if you have any of those, and I issue them the token." But on day one, that person just turns around and can sell that token to anybody on Earth. And that's a really

2:07big no-no in the world of financial securities. So, that was kind of the big thing that we looked at early on was, "Okay, this is kind of step one is how do you implement these transfer restriction things to ensure that only the correct people are allowed to hold and trade these financial And we started going down the rabbit hole in terms of the regulated financial

2:26world. We're okay, how can you have volume transfer restrictions? How can you make it easy for security token issuers to pay dividends? How can you make it easy for them to conduct voting with their shareholder? So, on and on, we've been building out all of the infrastructure, all of the ground layer of how can we have actual regulated financial securities on blockchains. And

2:47so, you asked briefly about Polymesh. So, Polymesh is kind of the next step in terms of the evol- of what financial securities look like on blockchains. And so, initially, we started building all of this technology on top of Ethereum. Ethereum was live at the time when we started this back in 2017. It had a pretty strong community that was growing

3:09around it and you could actually build something right then and you could get people using it. You could see, "Okay, is there actually a market for this? Is there product market fit? And can we get distribution of people using this technology right now?" And we learned, "Oh, yes, we can. That's awesome." That was great. So, to this point, there's been about 180

3:29security tokens created using Polymath on top of Ethereum. That's awesome and we're incredibly excited about that. But as we've kind of gone on this journey and as we start talking to more and more large institutions about security tokens and about blockchain tech, there's a few problems with using Ethereum or something like Ethereum. And they mainly center around things like

3:53KYC and AML. The confidentiality of transactions being another big one. So, on the KYC and AML side, that's really where a lot of our tech was built on Ethereum is, "Okay, well, on Ethereum wallets really know two things. They know how much ETH or other tokens are in this wallet and what is the account or the address associated with this wallet?" So, 0x123ABC.

4:19It knows nothing about identity. And so, a lot of what our tech was building on Ethereum was, "Okay, well, how can you actually build an identity solution on top of Ethereum?" And it worked, right? You can restrict transfers. You can make sure that people have to go through a KYC process to get a hold of these tokens. You can link people's identities

4:35to these Ethereum addresses. And it works, right? But it's not a very elegant solution. And the other one with KYC and AML is around mining. So, on Ethereum anyone can be a miner, right? So, let's say I'm in Toronto, you're in Vancouver right now. Let's say RBC wants to trade a security token with using Ethereum. So, sends $10 worth of ETH to RBC. RBC sends security tokens to

5:07To Where does the ETH go that pays for the gas in that transfer? Right, nobody knows. It goes to some miner who is rewarded based on that transaction and where it ends up in a block in the next block. Right? Nobody knows. So, it could go to somebody who's in a sanctioned country. Now, that bank, that regulated financial institution has just sent money to

5:31somebody they're not supposed to send money to in the eyes of a regulator. So, those are kind of that was kind of the big thing in terms of KYC and AML. And so, with Polymath, we're going, "Okay, how can we build a blockchain that has one purpose and one purpose only, regulated financial assets?" And so, we started thinking, "Okay, well, there needs to be identity baked into the base

5:52layer." So, on Polymesh, every single holder of tokens has been KYC and AML verified. In addition, every validator, so we use a proof-of-stake model. We're actually building on Parity Substrate, which we can talk about a bit later, if you'd like. So, every validator, so the people who are validating blocks, they're all permissioned, right? So, they've been

6:13approved by the network in order to do that. And so, they're all regulated entities. So, now institutions go, "Oh, wait. You have this blockchain where there's actually regulated entities that I'm sending transaction fees to? I'm kind of excited about that, right?" And so, that's what we've been hearing from institutions. Just a few other reasons as well

6:33that we can we can definitely get into, but I feel like that was probably like a 20-minute answer for a for a very short question. So, I'll let you kind of steer the convo wherever you want to go. That was awesome. No, that builds a great foundation for an understanding for a lot of people that are in the traditional finance industry that are, you know, trying to get involved with

6:52the intricacies of blockchain and security securities and security tokens, which is, you know, eventually many people foresee possibly everything in the stock market being tokenized under security. Now, and there was a lot of intricacies that you talked about in the beginning there. But there's also a lot of benefits for corporations to put their to tokenize

7:13their shares. And could you talk a little bit about, you know, why companies should tokenize and how does it benefit them? Yeah, I look at it with kind of three big things that sort of enable these two other things. So, big three things for why we're really making the capital markets system more efficient, right? So, there's now a fully digital tech

7:37stack and a lot more efficient, especially when you look at the world of private securities, which today can still exist as a literal piece of paper somewhere. So, we're we're making it much more efficient in order to create a security and then manage that security. It's a lot more automated. So, now the fact that you have the security token thing

7:55that it lives on a blockchain, you can do things like program it. So, you can have if-then statements get executed. So, that's very exciting in terms of something that you couldn't do before. And the other one is transparency. And that's partially on the side of the regulator, right? So, the regulator today, especially in the private securities market, they really only get visibility

8:19into the market after something goes wrong. So, an investor says, "Hey, this company did something bad. I'm going to sue them." Then the regulator can start to uncover documents. They go into lawyers' offices. They go into transfer agents' offices. And they kind of have to piece together, "Okay, what really happened here?" Whereas, if everything's on a

8:36transparent blockchain, the regulator has real-time access into what exactly is going on. So, that's really big for them. But the other transparency thing that's exciting is for issuers and investors security tokens. So, we actually we're working with a number of companies now. One of them is in Australia. They're called Marketlend, where they deal with short-term loans and

8:58convertible notes. And so, they were saying to us, "We need to make sure that our investors into these instruments can see what's happening on the blockchain because previously, they'd have 30 different investors and two lawyers and a transfer agent somewhere and an issuer all with just Excel spreadsheets saying, 'Hey, this is how many shares I think I

9:17have after the last raise.'" And then you just have to go, "Wait, what? No, you don't have that many." And then you have to reconcile all that stuff. But when there's one source of truth, that makes everything so much easier, right? So, those three big things, efficiency, automation, transparency, they kind of lead into especially on the efficiency side of

9:36things, enabling new products to get created. And so, one of those, just a very simple example, is something like a revenue share agreement. And so, revenue share agreements have existed in the past, but what about a revenue share agreement where you can pay out those revenue share dividends on a daily basis, on a weekly basis, right? Because typically in traditional financial

9:59markets, if you want to send a dividend to your shareholders, you're going to send a wire transfer, right? So, you're paying thousands of dollars every time you want to send a dividend. So, people don't really send dividends all that often. It might be quarterly, it might be monthly, but once you make the entire capital market stack digital and very efficient,

10:16we can do a lot of very interesting things and we can create a lot of new products that aren't really utilized today. And then the other one is liquidity. So, again, we talked about kind of making the capital market stack more efficient. You also make trading more efficient. And we're really moving from a world where in the stock market today, trading

10:36is like T+2. So, when you make the trade to somebody, it actually settles two days later to a world where it's more like T0, right? So, that's why if anybody's heard of T0, it's called T0 because you can actually get to a world where the trade is the settlement. So, that's also very exciting and it just makes trading a lot more easier, which hopes to unlock some of that liquidity

10:57for assets that previously didn't trade because it was too hard and too complex and too expensive to trade. Yeah, that's great. Great points and I can definitely see how, you know, the automation and the efficiency, you know, even just cutting down legal costs and being able to automate things through smart contracts has huge advantages. So, so thank you for that.

11:18And now speaking of automation and smart contracts, with the PolyMesh network, is this network going to be just used to host these tokens and to do the transfers or is it really like a full blockchain network that also will have smart contract functionality, decentralized applications, and all of the other things that, you know, are built on like Ethereum and EOS and

11:39whatever the other popular blockchains are? Yeah, so it's a blockchain, right? So, we are building a blockchain. It is it's not limited in any way really like that. But what I will what I will say is that it's optimized and purpose-built for financial securities to exist on. That's really when we started looking at all the options that were around. So,

12:02you mentioned EOS, you mentioned Ethereum, some of these other chains that existed exist today. We said, "Okay, nothing is purpose-built for securities." And so, we started looking at ways that we could do that. We actually landed on using the Parity Substrate framework in order to build our blockchain. And it's actually really nice because it's it's

12:22modular by design. We can kind of pick and choose, "Okay, I want this piece. I don't want this piece. I want this piece, but I want to tweak it a little bit." You can actually build your own blockchain that way and so, it's very very nice. So, people can build smart contracts on top of PolyMesh. People can build dApps on top of PolyMesh. It is

12:39a full blockchain that people can use kind of to their hearts' delight. But really it's been optimized so that we can say to institutions, can say to regulated players in the financial industry, "Here is the blockchain that you've been waiting for financial securities." Mhm. Great. And I know you guys made the announcement at Consensus along with, you know, the

13:01co-architect Charles Hoskinson. So, congratulations to that back in the summer of 2019 here in the beginning of the summer. What is the timeline for like a mainnet launch, businesses, you know, getting on? And can they use it right now or do we have to wait wait for a mainnet launch? You know, can you give some time frame around it? For sure. So,

13:25as far as PolyMesh going live, we're looking at testnet for Q2 of 2020 and then mainnet for Q4 of 2020. So, I'm actually today we're we're going back and forth a lot on stuff that's going on in the white paper. So, white paper is hopefully coming out in January before the testnet launch and so, we're really excited about that so

13:48people can actually dig in to see, "Okay, how were you guys thinking about identity? How were you guys thinking about confidentiality of transactions? How were you guys thinking about consensus?" And so, we're really excited to kind of show that to the community and say, "Hey, what do you guys think of PolyMesh and how we built it?" so, those are kind of the main

14:09timelines that we're looking at right now. That's great. And leading up to that, what are you guys looking for in terms of expanding? Do you need more developers? Do you need more team members? Or more testers or more strategic partnerships? Everyone needs more developers. I kind of want to do the Steve Ballmer developers, developers,

14:30developers, right? Yeah, so right now Polymath is a team of 35. About half of those are developers. I actually joined back in 2017 as the first employee. So, I've kind of gotten to see the massive growth and excitement that is Polymath from the very beginning and it's it's crazy to just go, "Okay, cool. Yeah, they we have this amazing team of people that I think are

14:53some of the smartest people I've ever met in my whole entire life." 35 people now working on this on this solution to how can we actually make capital markets more efficient, more automated, and more transparent. And yeah, of course, we're definitely looking for developers. If there are any developers, please hit me up anytime of day. Check out our website. We've

15:12we've got a careers page as well over there that you can check out. And you mentioned other partners. That's a big area as well, for sure. And we talked about institutions and really that's where we see that huge amount of adoption coming in the security token space is with institutions. And at Polymath, we're really big fans of partnering. We want to build the base layer

15:36technology for security tokens. We want to partner with other people who are focused on their own areas of expertise. So, today when you use Polymath our product on Ethereum, we call it the Polymath Token Studio, you can go, you can create a security token in about 10 minutes. Part of that process is going into the Polymath Service Provider Marketplace, where we say, "Hey,

15:58security token issuer, do you have a KYC provider you're using? No? Check out these 10 that are here right now that work with security tokens. Do you have a lawyer who's helping you draft your documents? No? Check out these 10 that we have here in the Service Provider Marketplace. Do you have a broker-dealer who's helping you fundraise? No? Check out these options that we have here."

16:17And so, we love the idea of partnership and specialization, where we're not coming into the security token space and saying, "Hey, we're great at building technology as far as blockchains and security tokens go. We're also great at fundraising, right? We're also great at doing KYC and checking out passports and making sure that they're valid and not

16:37fabricated, right?" And so, we've been building this ecosystem over the last two years. We've got over 45 partners now from a number of different jurisdictions and that's definitely still a huge focus of ours going forward is how can we get more and more institutions excited about security tokens? And now specifically, how can we get them excited about security tokens

16:58on PolyMesh? Awesome. Well, thank you so much for your time, Graham. That's all the time that we have today, but I will leave those links for the developers and the Polymath information in the description box below. And let's follow up in the near future as you guys work towards the mainnet. Definitely. Thanks, Ashton.