Polymath

POLYMATH

Summary

Security tokens have the ability to alter the financial landscape, unlocking trillions of dollars in asset value and investment, programmably automating operations, and driving new paths to liquidity. For Polymath, the Ethereum blockchain has been an excellent starting point for security tokens, but is missing foundational elements that issuers and investors need, and that institutions and regulators require. After having enabled the creation of 150+ tokens, our research and experience has shown that institutions need a blockchain built from the ground up with the specific requirements of securities regulations in mind.

Polymath addresses this need with Polymesh, an enterprise-grade blockchain built for security tokens. The foundations of Polymesh are focused on the most crucial regulatory elements, addressed by four key design principles meant to meet the demands of regulators and institutions, while unlocking the true potential of security tokens:

1. Confidentiality - protecting information and ownership privacy while providing a mechanism for accurate reporting and auditing.

2. Identity - ensuring that no individual or entity can create, acquire, or sell security tokens without a validated identity. Securities regulation requires issuers, in certain instances (i.e. issuances under exemptions), to know the identity or confirm the profile of their investors prior to investment, and continuously monitor their suitability throughout their investment. Additionally, all Validators must be known, regulated entities.

3. Governance - providing an operating and governance structure for how Polymesh is managed that allows for curation, and protects assets from contentious forks during network upgrades. This includes providing an established method for addressing and actioning proposals.

4. Compliance - providing financial primitives and smart extensions to manage security tokens across one or more jurisdictions and enforce appropriate rules for creating, issuing, and trading security tokens while also providing the capacity to manage necessary complex restrictions and distributions on-chain.

Polymesh will use the Nominated Proof-of-Stake consensus mechanism with the finality gadget GRANDPA, and be supported by POLYX, the native protocol token. With Polymesh, Validators stake POLYX on the network and run authoring nodes, Nominators stake POLYX on Validators, and both are rewarded or fined by the network based on blocks being added to the chain and fulfillment of their roles. All POLY tokens currently existing on Ethereum will be able to be upgraded to POLYX at a 1:1 ratio.

Economics

Polymath extensively researched and consulted with leading economic, game theory, and operational process experts to establish the token economy for Polymesh with the goal of delivering utility, security, and sustainability for the chain. The core of this economy is the native protocol token that fuels Polymesh, POLYX, which both secures and operates the blockchain. Any transaction or use of smart contracts on Polymesh is paid for in POLYX.

Enabling Economy

The consensus mechanism on Polymesh is Nominated Proof-of-Stake. Validators and Nominators work together to power Polymesh’s enabling economy by staking within the network and acting according to the consensus rules. Participants receive rewards for successful validation of blocks to Polymesh.

Validators and Nominators are not responsible for ensuring the compliance of a transaction, only that the transaction has been properly completed in accordance with protocol rules.

Validators run authoring nodes that keep the blockchain secure and operational at all times. On Polymesh, Validators are permissioned entities, regulated in their respective jurisdictions. They earn block rewards as blocks are produced and finalized and may be penalized in the form of fines (slashing) for malicious, dormant, or incorrect activity. Prospective Validators may submit their application to the Economic Committee for review and approval. (See more on Governance in Section 5.0).

Nominators select and stake Validators as a signal of trust. Their stake is distributed across their selected Validators using an algorithm that aims to evenly distribute all staked POLYX.2 Any verified POLYX holder can become a Nominator. If the nominated Validators perform to protocol rules, the Validator and Nominator receive block rewards. Similarly, Nominators may be slashed based on a nominated Validator’s improper activity.

Block Rewards are shared equally by all Validators that abide by the protocol rules. Validators keep a fixed percentage of the rewards with the rest being distributed to their Nominators on a pro-rata basis per their stake in the Validator.

Bonding Period is the amount of time POLYX is locked following a Validator or Nominator withdrawal request. Once requested, staked POLYX will unlock after the bonding period lapses. The bonding period may change through the governance process.

Finality Nominated Proof-of-Stake offers deterministic finality that can be instantly trusted. Validators vote on the blocks generated, and once more than two-thirds of Validators have voted in favor of a block, it is finalized. A shared characteristic of blockchains is that every new block contains details of all the previous blocks and if a block is finalized, all its previous blocks are finalized as well. This characteristic allows finalizing a batch of blocks in one vote rather than having to vote on every block. Batching allows the chain to remain live and scalable with guaranteed finality within seconds rather than minutes.

Token

POLYX is for use on the Polymesh chain, supporting the platform and serving the system in ways that include but are not limited to:

1. Fueling the enabling economy. Similar to ETH on Ethereum, POLYX will serve as gas on Polymesh. Transactions are paid for in POLYX (e.g. submitting transactions, running a smart contract) into the Network Reserve. This also funds system operational expenses.

2. Increasing system value creation. POLYX enables tokenholders to actively participate in the security of the blockchain by staking their POLYX to nominate Validators and earning a commission from block rewards.

3. Preventing spam. Attaching a cost in POLYX to transactions on the chain helps prevent network spamming.

4. Paying grants for projects that contribute to ecosystem growth and maintenance.

5. Managing upgrade governance. POLYX can be used to stake and vote for network upgrades.

POLY to POLYX upgrade mechanics

Upon the launch of Polymesh mainnet, and for at least a year thereafter at the discretion of the Governing Council, there will be a bridge to upgrade POLY to POLYX. POLY tokenholders can upgrade to POLYX tokens at a 1:1 rate. A significant amount of the Polymath POLY reserve will also be migrated through the same bridge. A validated identity is required to transact with POLYX tokens.

Polygon Contract Address: 0xcB059C5573646047D6d88dDdb87B745C18161d3b