Blueprint for the Tokenization of Shares

October 31th 2018

The Swiss association CMTA has published yesterday its groundbreaking blueprint for the compliant tokenization of shares in Switzerland, which was the legal base for the tokenization of Mt Pelerin's own shares.

An Introduction to the CMTA

The CMTA, which stands for Capital Markets and Technology Association, is a newly formed independent association, whose purpose is to create common standards in Switzerland around issuing, distributing and trading securities in the form of tokens using the blockchain.

The initiative of this association was led by Lenz & Staehelin, Swissquote, Temenos and the EPFL, with the mission to democratize the benefits of the blockchain and distributed ledger technology in finance, and to start outlining clear and sustainable legal standards for that purpose.

Being fully aligned with that mission, Mt Pelerin joined the CMTA as a member to provide technical blockchain expertise, and was the first company to put the CMTA's blueprint in practice to tokenize its own shares.

The Blueprint

The blueprint, based on the already famous legal opinion from Professor Hans Caspar von der Crone of the University of Zurich, is a complete step-by-step guide explaining the process of tokenizing equity securities of Swiss corporations. In other words, how to incorporate shares into digital tokens recorded on the blockchain.

More specifically, it explains how to take shares already issued for a Swiss corporation and "wrap" them into digital tokens, so that such tokens and the underlying shares are tied to each other in a manner that prevents the shares from being transferred without the corresponding tokens and vice-versa.

This solution to bring shares on the blockchain comes as an answer to many blockchain projects that have structured their token in a contractual way, simulating a share through a private contract between their company and each of their investors, without being an actual share.

By following this document (with the appropriate technical and legal assistance), one can reach an elegant solution providing a proper level of legal certainty for the company and its token holders / shareholders.

Link to the blueprint PDF

The Advantages of Share Tokenization

As we were explaining in our previous article, this form of share digitalization is a game-changer. Indeed, as the CMTA wrote:

"[...] the transfer of shares involves certain formalities, which complicates trading in a digital world. Typically, the transfer of shares requires a written instrument (and sometimes the delivery of physical certificates), or the credit and debit of securities accounts kept by banks or other custodians. The current legal framework regarding digital signatures is ill-fitted for the securities markets"

The share tokenization proposed in this blueprint makes the digital transfer of a share possible, without having to deal with a written form or an intermediary.

This form enables investors to buy and sell shares of a company in an extremely simple and almost instantaneous way, without needing that company to be listed on a public stock exchange, a step out of reach for most companies due to its costs and complexity.

It is an extremely interesting alternative to ICOs, as it allows a startup to use a compliant and sustainable fund raising method without adding significant complexity to the process.

This is why Mt Pelerin has chosen this form for its own fund raising, using the Mt Pelerin Bridge Protocol as the framework to make this share tokenization possible on a technical and compliant aspect.

If you are interested to use the Mt Pelerin Bridge Protocol as a technical solution, please contact us. For legal questions about the blueprint, please contact the CMTA.