An ERC20 securities token

Binary.com will be performing an ICO from 15 November to 25 December 2017, offering up to 10 million tokens which offer two exclusive rights: (1) the right to receive dividend-linked payments, and (2) the right to convert tokens into ordinary shares of the company. In practice, the tokens will be economically equivalent to ordinary shares of the company.

Binary.com's ICO is in effect an "IPO on the Blockchain". The reasons why we decided to go down this route instead of a traditional IPO are explained in the blog post Why we are doing an ICO (and not an IPO).

Whereas 2017 has been the year of the "utility token", we believe that 2018 will usher in the era of the "securities token", where an increasing number of companies worldwide decide to list on the blockchain directly, bypassing the often archaic and expensive traditional stock exchanges.

ERC20 securities tokens however need to implement quite a number of features that are not required for utility tokens. Indeed, companies listed on the blockchain will need to be able to perform the full gamut of corporate actions that they would have been able to perform if they had opted to list on a traditional stock exchange.

For this reason, Binary.com decided to adopt the Mini Me ERC20 token. This token provides unique features that are appropriate for a securities token. One of its most important features is the ability to clone itself at a given block count, effectively creating a "mini me" version of itself. It is this ability to create clones/forks of the token that becomes useful to implement the common types of corporate action, as detailed below.

Note: Binary.com tokens will use the symbol BINARY.

Dividend-linked payments

The Binary.com tokens entitle the holder to receive payments equivalent to the dividends paid on ordinary shares of the Company. To implement the dividend feature, Binary.com will clone the BINARY token at a given block height. The cloned token, which all BINARY tokenholders will inherit, will represent dividend rights.

By way of illustration, Binary.com may declare a dividend of $0.02 per share, payable at Ethereum block height 4518852. The symbol for this dividend right would be BINARY_DIVIDEND_USD2c_4518852. This token is essentially an IOU for $0.02 payable by Binary Group Ltd. (Note: this is by way of illustration only; actual dividend amounts and block heights will be declared by the company in due course over time). Concurrently, the same amount of dividend will be paid to shareholders of the company.

Tokenholders would have two possibilities to cash out this dividend right: (1) they could trade the token on a cryptocurrency exchange (if it gets listed) - in which case it would be natural to expect that the token's value would be essentially fixed at $0.02, or (2) they could redeem the token for $0.02 (or equivalent in other cryptocurrency) from Binary Group Ltd.

In regards to (1), the dividend rights become in effect freely tradable fiat currency-backed IOUs, similar to Tether tokens.

In regards to (2), i.e. redeeming the dividend right token from Binary.com, the tokenholder would need to log into his Binary.com account, ensure that his/her account is authenticated (to fufil KYC - Know your client requirements), and then deposit the dividend right using the facilities provided. Once the dividend right is deposited, $0.02 per dividend right token will be deposited to the user's Binary.com USD account.

Voting

The BINARY token is governed by a Token Instrument, which may be amended by majority vote of the tokenholders. Such voting shall take place by cloning the BINARY token to issue voting rights.

Such voting rights may be exercised by tokenholders by sending the token either to a pre-defined "Yes" Ethereum address or a pre-defined "No" address.

Mergers and Acquisitions

One reason why companies list on a stock exchange is so that they can use their listed shares as 'currency' to acquire other companies (or sometimes to merge into them). This is done by issuing new shares as payment for the acquisition of the shares of the other company.

On the blockchain using the Minime token, such acquisitions would be performed by issuing new tokens using the generateTokens() function. Typically utility tokens don't have such a function, because they are part of a closed ecosystem where issuing new tokens would unfairly dilute existing tokenholders. The issuance of new securities tokens in an acquisition does dilute existing tokenholders, however the benefit is that the company now has larger assets due to the acquisition. i.e. smaller percentage of a larger pie.

Change of symbol

Although it is unlikely that Binary.com would need to change its token symbol, a symbol change could be performed by cloning the BINARY token, with the clone having a new symbol, and then destroying the original BINARY token.

Rights issues

As described in Wikipedia, a rights issue is a dividend of subscription rights to buy additional securities in a company made to the company's existing security holders. It is a non-dilutive pro rata way to raise capital.

Rights issues would be performed on the blockchain by cloning the BINARY token at a specified block height, hence creating the Right. Such Right may be exercised by sending it to a specified address/smart contract with a sufficient amount of Ether attached to exercise the Right under its terms. The MiniMe token doesn't currently support this, hence a new token would need to be created that would fork the BINARY token.

Warrants/options

The issuance of warrants or options can also be performed by cloning the main token and providing a smart contract for the redemption of the warrants or options. Since the MiniMe token doesn't directly support transferring Ether alongside the Token, as per the Rights Issue case a new token would need creating to implement warrants/options issuance.

Further thoughts

Listing securities on the blockchain is a very new phenomenom, which if it gains traction could disrupt the long-established trillion-dollar stock exchange industry. Binary.com's use of the MiniMe token is likely in future years to be seen at a very early-stage endeavour; by that time much more sophisticated tokens will likely have been developed, providing far greater functionality and ability to model complex corporate actions.

Disclaimer: Binary.com may need to upgrade its token over time to stay ahead of developments on the blockchain and the methods for implementing corporate actions detailed above may change over time. Whereas the technology and methods may change, what does not change is Binary.com's commitment to remain fair and equitable to its tokenholders at all times.

An ERC20 securities token
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