Yesterday, during the first day of Consensus NYC, Polymath announced their intentions to work on a tier1 blockchain for digital securities. The announcement, arguably, represents one of the most ambitious steps towards building an infrastructure optimized for digital securities from the ground up. I’ve been aware of this project almost since its inception and, at a recent conference, I mentioned that I would like to see more efforts like this in the security token space but I worried about the timing. A few months ago, I published a three-part essay about this topic(Part I, Part II, Part III) but, obviously, my thinking and the market has evolved since then. While, at first glance, the value proposition of a blockchain specialized in security tokens seems to make sense, that picture quickly starts becoming fuzzy when digging through the technological and business layers. Today, I would like to deep dive in the arguments in favor and against a tier1 blockchain for security tokens and correlate it with alternative approaches in the context of the potential evolution of the space.
The idea of a blockchain specialized in security tokens looks to remove any of the infrastructure dependencies on decentralized runtimes such as Ethereum. Many of the capabilities of blockchain runtimes such as decentralized consensus or semi-anonymous, computation-based trust impose really inflexible dependencies in the new generation of digital securities. However, linking those limitations to the need to a new tier1 blockchain at a time in the market in which we barely understand the requirements of digital securities seems a bit of a stretch. In the history of software technologies, the most successful infrastructure trends has been those closely aligned with new application requirements. Some times infrastructure precedes applications and other times applications drive infrastructure but the two trends evolve in relative proximity of each other. In the case of security tokens, the current generation of crypto-securities are barely pushing the boundaries of the Ethereum blockchain and I don’t believe we yet understand what capabilities will be needed beyond this point.