To demonstrate its technical capabilities and the practical benefits of tokenization, Mt Pelerin tokenized 100% of its share-equity when it incorporated its company, Mt Pelerin Group SA, in Switzerland on September 27th 2018.
We wanted to sell a small part of Mt Pelerin's shares to the early supporters of the project, who wanted to contribute to its initial fund raising. Simpler forms of tokens could have been sold to them like most other ICOs and STOs, but we wanted the best for our community and offer them a product with a true value, direct ownership and a solid legal protection.
The decision was taken to create a real tokenized share, the first share-token, where a token would be equal to a share in all aspects. The point was to give a token holder the same rights and the same level of legal protection as a traditional shareholder. It would be a radical upgrade from all the existing tokens simulating shares through private contracts between their issuer and their buyers, which provides little protection.
The concept behind a tokenized security is to associate the security, in this case equity, with a token so that both are indissociable and cannot be transferred separately.
From a legal standpoint, the rationale here is to consider a security as a financial asset that is associated with a tradable support. Traditionally, this support has been paper and today the goal is to replace a piece of paper by a digital token.
Normally, Swiss law requires the written form for the transfer of a security, or in other words a paper with signatures on it. Obviously, this format is a problem if we want to enable the trading of tokenized securities by transferring tokens digitally.
The solution is to formulate the transfer of a security token as a transfer of contract sui generis. In such a case, the written form for the transfer is not required if the transfer is allowed under the terms of the relevant contract or if all the parties of the contract participate in the transfer.
The buyer of tokens during a token sale agrees to the tokenization and to the terms of transfer when purchasing the tokens. Subsequent buyers implicitly agree to these terms by purchasing tokens on the blockchain.
Here are the practical steps that were taken to tokenize Mt Pelerin's equity, and that can be followed to do the same for any limited company (société anonyme / Aktiengesellschaft) incorporated in Switzerland:
By December 15th 2018, Mt Pelerin had sold the 5% of shares that were available for sale for $2 million, to hundreds of investors big and small from around the globe. The demonstration that private equity could be democratized, disintermediated and made available to a large number of individuals without any financial barrier was a success.