Brickken was founded in January 2020, and quickly became a leading voice in the world of tokenization for its avant-garde use of blockchain technology for the tokenization of real assets.
Asset tokenization is the process by which any real-world asset, tangible, or intangible, is digitized and then divided into smaller pieces that take the form of tokens. Each token represents a proportional part of the digitized asset, offering the owner of the token, the corresponding economic rights
The tokenization market is booming and has established itself as a real alternative for individuals and businesses looking to raise financing. Historically, investors are used to a traditional marketplace in which there is almost zero tolerance for small to medium sized investors when it comes to illiquid assets. This is a marketplace where institutional money rules with an iron fist.
In addition to the tokenization market, there is a complementary market aimed at the development of circular economies, for which more and more companies, both public and private, want to use asset tokenization tools to contribute to their fight for sustainability, utilizing native tokens as a direct communication channel, which enables holders to engage in the governance of the protocol by voting, rewarding positivity and interacting as member of a community.
Brickken’s legacy operating model was that of a service provider which utilized a centralized blockchain, where clients would use Brickken’s platform and thus, Brickken was required to adhere to the host state legal, and regulatory framework for the provision of a security token issuance. A very difficult task given the geographical disparity of projects and differing regulatory frameworks from jurisdiction to jurisdiction.
This experience led Brickken’s management to decide to change the operating model from centralized blockchain, to a frictionless, decentralized model, where third parties could take advantage of Brickken’s technology in a secure and legally compliant manner, whilst enjoying all the benefits associated with the use of security token offerings as a financing methodology.
This whitepaper explains the reason why it is pivoting from centralized, to a decentralized operating model.
Let us begin by discussing the different types of tokens and forms of issuance.
The different tokens
Generally, there are three types of tokens, each with their own specific use case and legal framework. Depending on how liquid the technology is, a specific token can sometimes have additional utility, and in some cases, have hybrid characteristics where it performs two or more functions.
This section focuses on the issuance of utility and security tokens, which differ in how they are issued, due to underlying regulatory and legal requirements.
A utility token provides access to a blockchain protocol, dApp, and/or can be exchanged for another type of product or service. These methodologies can differ depending on the accessibility to the public.
ICO (Initial Coin Offering)
An initial coin offering (ICO)4is the cryptocurrency industry’s equivalent to an initial public offering (IPO). Where the purchase and sale of tokens is completed directly between issuer and buyer. A company looking to raise money to create a new coin, app, or service launches an ICO as a way to raise funds. Interested investors can buy into the offering and receive a new cryptocurrency token issued by the company. This token may have some utility in using the product or service the company is offering, or it may just represent a stake in the company or project.
- ICOs also retain at least two important structural differences from IPOs. First, ICOs are largely unregulated, meaning that government organizations like the Securities and Exchange Commission (SEC)5 do not oversee them. Secondly, due to their decentralization and lack of regulation, ICOs are much freer in terms of structure than IPOs.
- ICOs can be structured in a variety of ways. In some cases, a company sets a specific goal or limit for its funding, which means that each token sold in the ICO has a pre-set price and that the total token supply is static. In other cases, there is a static supply of ICO tokens but a dynamic funding goal—this means that the distribution of tokens to investors will be dependent upon the funds received (i.e. the more total funds received in the ICO, the higher the overall token price).
- Still, others have a dynamic token supply which is determined according to the amount of funding received. In these cases, the price of a token is static, but there is no limit to the number of total tokens (save for parameters like ICO length).
Initial Exchange Offering (IEO)
When issued via a centralized exchange, which places the tokens for sale for buyers to acquire, this is known as an Initial Exchange Offering (IEO). IEOs are a recent development in the rapidly evolving digital asset space. IEOs are similar to ICOs in that they are initial offerings of digital assets (e.g., coins or tokens) to raise capital. However, IEOs are touted as an innovation on ICOs because they are offered directly by online trading platforms on behalf of companies—usually for a fee—to provide immediate trading opportunities for digital assets.
Initial Dex Offering (IEO)
If the public issuance is created through a decentralized exchange, the issuer has no control on the result of the issuance, this is therefore classified as an Initial Dex (decentralized exchange) Offering (IDO).
- An IDO is a new type of decentralized and permissionless Initial Coin Offering, which opens up a new method of fundraising in the Cryptoverse.
- This type of decentralized asset depends on liquidity pools where traders and investors can swap tokens such as USDC/ETH and USDC/BKN.
- IDOs are generally referred to as the successor to other funding models (above). Offering better liquidity at all price levels due to its mechanics.
- Unlike other fundraising methods, IDOs are generally considered a fair way to launch a project by avoiding issues such as pre-mines, which is an issuance system that favors project founders and community members.
Brickken has decided to issue the utility token via an IDO as it meets our fundamental values which include being peer-to-peer, fair, and decentralized in nature.
Before understanding what a security token is, we must first understand the characteristics of a traditional security. A security token is a representation of a security, which is a fungible, negotiable financial instrument that holds characteristics such as monetary value.
There are primarily three types of securities:
- An equity security represents ownership interest held by shareholders in a legal entity (a company, partnership, or trust), realized in the form of share capital, which includes shares of both common and preferred stock.
- A debt security represents borrowed money that must be repaid. Characteristics are size, yield (interest rate), maturity and renewal (redemption) date.
- Hybrid securities, combine characteristics of both debt and equity securities, e.g., equity warrants, convertible bonds, among others.
Securities have been in existence for hundreds of years. In the last century, these were first issued in paper format, then more recently, digitally. The latest innovation can be represented in the form of tokens issued on a blockchain.
A Security Token Offering is issued to the public, and since it represents the existence of securities, it must be compliant with the regulatory and legal framework of securities in the jurisdiction in which they are issued. For instance, this means that if a company is issuing security tokens in Germany, the issuance will have to comply with the same legislation as the issuance of securities in Germany. This complicates matters as not all countries have a uniformed regulatory framework.
Ultimately, STOs follow the same guidelines as the issuance of any security, and this makes the issuance of this type of tokens incredibly cumbersome, heavily regulated, with high barriers to entry due to the know-how needed to perform them from a regulatory, legislation and technological perspective. Nevertheless, STOs offer unique characteristics similar to traditional capital markets.
The added benefit of using blockchain technology ensures asset tokenization also retains the characteristics of the native blockchain. These include immutability, transparency, auditability, and traceability in a network which is live 24 hours a day, 7 days a week, 365 days a year.
Generally speaking, a token is basically the representation of something else; every token represents a proportional part of a digitized asset. This also means that the owner of the token possesses the associated ownership rights and/or other types of economic rights established by the individual company performing the asset tokenization.
The procedure which determines whether an issuance meets the requirements of securities law generally refers to the SEC’s (Securities & Exchange Commision) Howey Test. Whilst the Howey analysis is specific to US legislation, it is a globally recognized standard for determining whether a transaction qualifies as an investment contract. A consequence of qualifying as a security, means that underlying asset must to adhere to the Securities Act of 1933 and the Securities Exchange Act of 1934 (if you were an asset domiciled in the US). Under the Howey Test, an investment contract exists if there is an
“investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others”
- An investment of money,
- In a common enterprise.
- With the expectation of profit.
- To be derived from the efforts of others.
Brickken intends to provide the platform that will allow individuals and businesses to facilitate STO’s whilst being able to comply with local laws and regulations in the jurisdiction where the underlying asset is domiciled. An individual or business will have to comply with said regulations in order to utilise the platform.
Brickken’s original mantra was that we would ‘tokenize the world’. We quickly realized we were approaching the accessibility of illiquid markets from the wrong perspective.
“Brickken’s decentralized technology provides the platform and tools needed for the world to tokenize itself“
This whitepaper is Brickken’s declaration of our intentions to create an ecosystem full of opportunities, where endless investments are accessible to everyone with minimal capital expenditure and fractional ownership.
Our innovation is not limited to the robustness of blockchain technology, but also the underlying legal engineering which governs how the dApp performs.
Brickken believes the world will be tokenized. Our mission is to supply the technology and know-how for it to gain adoption organically.
The reason Brickken exists is to bridge the barriers to entry one must overcome when facing the real-world issue of tokenizing a real-world asset. We intend to remove the issues of friction, intermediaries, and general barriers to entry. We hope individuals and businesses can rely on STOs as an alternative financing scheme, and investors can engage in tokenization to obtain returns.
In addition to the incumbent regulation associated with Securities, as a retail investor/businesses perspective, several inefficiencies can be improved:
- The average investor usually transfers his/her savings to an intermediary (asset manager, broker, etc.) who will advise and/or arrange investments. The investor’s portfolio is subject to bias and thus may invest in a portfolio which may not be appropriate.
- Investing in traditional equity markets is a complex process where a limited group of experts dominate the market, making it extremely risky for retail investors. Retail investors generally have access to markets provided you reside in a developed economy which allows market access.
- Other illiquid asset classes such as real estate, renewable energy, transportation & infrastructure, hospitality, fine wine and art, and early-stage technology investing are not easily accessible to retail investors and small businesses without having the nominal value of the underlying asset ready to deploy.
- These types of markets are rigid and illiquid: one buyer, one seller.
- Investors who keep their savings in bank accounts typically see the value of their savings diminished due to aggressive monetary policies and inflation, which results in large scale devaluation and debasement of currencies due to widespread, unhindered monetary stimulus. The combination of these factors equates to lower purchase power of the currencies over time. Furthermore, deposits stored in bank accounts currently provide close to 0% interest in most developed countries and in many, negative interest. In addition to this, banking fees and inflation erode bank deposits over time.
The token economy
According to Deloitte9, tokenization could make the financial industry more accessible, cheaper, faster, and easier, thereby possibly unlocking trillions of euros in currently illiquid assets, and vastly increasing market liquidity and depth.
These assets are only available to specialized investors; a situation that leaves extraordinarily little room for retail investors to access these markets. In other words, investors are only left with the possibility of investing in equity and/or debt markets or cryptocurrency (which carries higher volatility and risks).
Real estate is one of the leading examples of a highly illiquid market, with high barriers of entry. A solution to this problem comes in the form of asset tokenization which provides diverse investing opportunities due to reducing barriers to entry and providing liquidity to asset owners. If we consider the European commercial real estate market alone has an estimated total valuation in the region of over 6,500bn and an estimated annual investment of 15bn.
In addition to this, globally, we are seeing the early stages of mass adoption of crypto assets and cryptocurrencies generally;
- Central banks (Fed, ECB, BIS) are discussing the implementation of Central Banks of Digital Currencies (“CBDCs”).
- Retail banks adopting blockchain based solutions.>
- US Treasury to allow blockchain, stablecoins for bank payments.
- Robinhood has experienced a growth in users from 1 million in 2016 to 14 million in 2020; did a succesful IPO with a market cap today of over $40B.
- Coinbase did a successful IPO with a market cap today of over $50 billion USD.
- Online finance and investment platforms are thriving;
- The crypto exchange Binance has a daily trading volume of above $500 million per day.
- US crypto exchange Coinbase successfully IPO’d this year.
Security Token Offerings and general asset tokenization is a disruptive technology since it provides a bilateral solution for retail investors and asset owners. Its adoption is well underway as a new form of financing, creating new alternative, untapped sources of return.
Tokenization as an enabler
The possibilities of asset tokenization are endless. Any asset can be digitized and divided into smaller parts, from physical assets such as real estate, to financial instruments such as debt, equity, bonds, securities, among others.
This allows different business models to be created on top of the tokenization layer, where there is direct communication between the issuer and the investor.
According to the World Economic Forum, by 2022 60% of global GDP will be made up of digitized assets10, encompassing a total value of $10 trillion (we believe a conservative estimation). The asset tokenization market was valued at $1.25 billion in 2019, and is forecast to reach $5.70 billion in 2027, growing at a compound annual growth rate (“CAGR”) of 22.54% from 2020 to 2027.
Asset tokenization is one of the main emerging trends in the financial industry and is expected to achieve sustainable growth in the near future. While traditional commodity and asset trading businesses have faced a downturn, asset tokenization, coupled with blockchain technology, is completely revolutionizing the financial industry. At Brickken, we believe that asset tokenization is an opportunity that is here to stay, and there is no better time to participate in this disruptive market.
One of the main factors driving the rise of the tokenization industry is the growing need to grant access to a growing audience of investors with new forms of investment. Both the technical progress in asset tokenization software, and the increasing demand in developing countries, are expected to result in higher growth opportunities for the industry in the coming years. For instance, an untapped area for development is to automate various asset management processes with the aim of improving liquidity and optimizing risk management through tokenization.
Currently, North America contributes the most value to the asset tokenization market (35% in 2018), followed by Europe (24%; where the regions of Germany, France, United Kingdom, Russia, and Italy stand out, respectively) and the Asian-Pacific (20%).
The quintessence of tokenization
The applications of asset tokenization are endless and can be applied to a wide variety of assets, from real estate to valuable art collections, as well as intangible assets. The most important tokenization classes are explained in the following table.
Security Token Offering (STO)
This wide range of tokenization possibilities provides investors with a wide selection of investment options at affordable costs, with variable investment returns that allow them the ability to evaluate the option that best suits their desired risk and returns profile without the availability of capital being an obstacle in their decision making. In other words, tokenization enables maximum diversification across asset classes in a way that is currently not possible for retail investors and small businesses.
The retail investor can now decide how to build his/her portfolio of digital assets. This degree of diversification translates to a more robust portfolio and where capital can be allocated to as many projects as the investor wishes without capital constraints.
For instance, large funds can diversify their portfolios, allocating a certain amount of capital, typically millions, to art or real estate (it is well known that art is uncorrelated to traditional equity markets). However, a retail investor is currently unable to allocate minimal capital to art; with asset tokenization, a retail investor could invest as little as 100 Euros in art if desired.
The correct use of technology can improve the efficiency of investing, by focusing on the customer’s journey, providing real-time information, verifiable, immutable, and transparent transactions, such as profit and loss, marking-to-market, and transaction history.
Another key advantage of digital assets that we wish to highlight is the simplicity with which they can be transferred from one portfolio to another, and from one user to another. This results in optimal liquidity, as you can buy and sell assets from user- to-user (peer-to-peer) simply taking advantage of digital platforms that connect users and execute transference in seconds, at minimal/marginal costs and without the need of intermediaries.
Brickken is developing the first ever dApp to service and support STOs, together with a smart contract protocol.
In our opinion, true democracy and decentralization can only be achieved with the use of blockchain technology. By being able to provide a product that combines these two instruments natively, Brickken will be able to fulfil its vision of providing the resources needed to allow the world to tokenize itself, since issuers of security tokens can create their own self-sustained and self-executed ecosystems, without the mediation of Brickken or third parties.
Furthermore, to achieve the level of democracy that is fundamentally a core value for Brickken, this requires that Brickken is fully transparent. Therefore, the development code will be stored in a public, open-source repository in Github.
This will allow the code to be audited and verified by third parties and will also encourage the community of users behind Brickken to help improve the code itself.
Finally, creating a public repository for the source code will allow Brickken to offer an open API, so third parties can use our smart contracts and back end for integration in any application or website, without the need to be dependent on the dApp’s front end, and further allowing new workflows and business models to be created without Brickken acting as an intermediary.
In a broad sense, Brickken’s dApp will facilitate the following.
- Will allow users to register with emails, recovering lost passwords and logging into the dashboards.
- Will allow users to buy BKN, Brickken’s utility token.
- Will allow users to create their own STOs using BKN through Brickken’s dApp.
- Will allow users to establish what kind of STO is being issued, debt or equity, its tokenomics, maturity, term, rights, yield to investors and/or any other source of income, among others.
- Will allow users to invest into existing STOs using any crypto as means of payment and allow them to create their own portfolio of STOs.Will facilitate the necessary KYC submissions and processes for promoters and investors, approve and reject, and whitelist investors to transfer STOs related tokens.
- KYC management and investor whitelisting is the key towards fully legal compliant STOs.
The dApp aims to connect the dots between the legal requirements (off-chain services to handle KYC and personal data) and the decentralized application, while facilitating the smart contract’s usage through a user-friendly interface.
We will be providing the tools and mechanisms to convert the interactions between the dApp and the STOs into readable language. This fulfils the purposes of serving as auditable, legal evidence in any type of procedure or discovery.
Given the simultaneous presence of off-chain and on-chain services in the platform, we aim to make the user interface both functional (MetaMask wallet) and easy to use. For this, we will use cloud infrastructure, which is highly scalable, secured by best-in-class security services and that can operate with no downtime.
Security token offerings
Utilizing a decentralized platform presents two prominent challenges;
- Technological: it connects the dApp’s back end which runs completely on a public blockchain through smart contracts. The smart contracts must be flawless to ensure the protection of issuers of tokens and their investors.
- Legal/regulatory: the objective is to issue STOs in a compliant manner. Investors must also pass a KYC process to comply with regulatory and anti-money laundering regulations.
When dealing with standard securities, the ownership information of the investment product is recorded in a certificate which can take the form of a simple PDF. With a security token, the information is stored into an immutable blockchain and instead of a certificate being issued, a token is.
All countries have very precise and extensive regulations in relation to what securities are, how they must be issued, who can participate, who can buy them, and what protection investors are afforded.
The complexity of creating Brickken’s dApp lies in merging both the regulatory and legal issuance of securities and the technical aspect that allows the issuance of this type of financial instruments without Brickken acting as an intermediary. Furthermore, countries may have similar, but ultimately different legislation. This adds a layer of complexity as the regulatory compliance requirements in one country can greatly differ from another.
Brickken aims to create a decentralized uniform protocol of security token issuance.
The goal is for any issuer of security tokens to use Brickken’s technology, and for this issuer to:
- comply with local regulations,
- comply with the specifications of the issuance itself (the what),
- comply with the process of how selling the security tokens may occur and by whom (the how) and,
- allow legally compliant transfer of security tokens to occur in secondary markets (the where).
Additionally, it is important to consider that while the biggest complexity lies in providing a solution that is compliant from a regulatory and technological point of view, the financial structure and tokenomics of the security token issuance must adhere to the end goal of the project.
In this sense, the dApp must allow the issuer to establish what are the hard and the soft caps, what is the term or maturity of the loan in case of issuance of debt, or what is the shareholding allocation in the case of tokenized shares.
Security token smart contracts
Smart contracts will be utilized to create two entities: the ERC2011 BKN utility token and an STO factory. The latter will deploy ERC20 dedicated STO tokens and escrow contracts for each STO that is issued through Brickken’s dApp.
The BKN token will be the utility token associated with the dApp platform. With it, promoters can issue their own STOs.
The BKN utility token will be accessible via a Uniswap pool12. Promoters will need to acquire BKN to use the dApp. BKN is then used when performing STO activities.
Brickken aims to achieve the highest level of security, using audited libraries and smart contracts that follow the best practices to reduce attack vectors and possible exploits.
The BKN utility token
The BKN utility token will have two fundamentally different and well-defined stages: the pre-issuance and the public sale.
The objective of the pre-issuance stage is to allocate BKN utility tokens to future STO issuers and different groups of people who trust in Brickken’s vision.
The public sale will be conducted after the pre-issuance period has ended.
At this stage, the BKN utility token will be placed through an IDO conducted in a Uniswap pool, which will be pre-funded with USDC (a stablecoin)13 and BKN.
Brickken will need to fund the pool to establish a fixed starting price, since automated market makers, and in particular Uniswap, use the Constant Product Formula14 to establish the price based on BKN/USDC pair funds deposited in the pool.
In essence, a Constant Product Formula is:
- x -> amount of BKN present in the pool.
- y -> amount of USDC present in the pool.
- k = x*y -> where k is a constant (Constant Product Formula).
- This means the price of y will be = k/x.
- The price of x will be k/y at any time solely based on the funds present in the pool.
Naturally, both x and y amounts (BKN and USDC) must be funded. The amount to be supplied is determined by the target starting price.
The utility tokens ERC20 contract will implement several functional advantages such as:
- Representation of voting powers depending on the pro-rata holding of BKN.
- STO issuers will hold BKN as collateral and there will be a system of reward and penalties for issuers that fulfil the obligations established in their respective STO white papers. These rewards will come in the form of staking and slashing.
- Compliance with many Ethereum improvement proposals such as EIP712 and EIP165;
- Brickken will propose the creation of a DAO (Decentralised Autonomous Organisation)15, which will govern decision making on matters such as protocol upgrades, allocation of social funds, governance among others.
The STO factory
An STOs dedicated token will be generated within an STO factory that will deploy an ERC20 token contract for each new tokenization.
This STO token will utilize whitelist access that will prohibit recipients from receiving tokens if they are not whitelisted, for example, if they did not pass the KYC process. These will only be tradable in secondary markets if the buyer has passed the KYC process and the issuer has accepted the request.
It is of utmost importance that the issuer of the security tokens controls the whole flow of security tokens from the primary to the secondary market, understanding and accepting which users can acquire security tokens.
This ensures compliance with the applicable legislation in relation to regulatory and anti money laundering (AML). Therefore, promoters or issuers of security tokens will always be responsible for the whitelisting of investors.
STO tokens will be acquired through an escrow contract specific to each tokenization. The escrow contract is a secure contract where investor capital is stored and protected by the smart contract. The smart contract is completely autonomous, independant and self-regulated. The escrow contract will only release the funds to the STO promoter when certain milestones have been reached:
- Soft cap: the soft cap is the first milestone of any STO and it is the minimum amount needed for the STO to proceed. This amount will be included in the STO’s white paper and investors will know it beforehand.
- When the soft cap is reached, the escrow account automatically releases the funds to the STO promoter and investors receive their tokens.
- Any economic benefit derived from the tokens will start accruing from the moment the soft cap is reached.
- If the soft cap is not reached within the time limits established by the white paper, the escrow account will automatically cancel the STO and return existing funds to the respective investors.
- Hard cap: the hard cap is the last milestone and it represents the total maximum amount of funds the STO promoter expects to raise. Once the hard cap is reached no additional tokens will be available in the primary issuance and the fundraising will be considered fully complete.
- The escrow account will release the remaining capital to the STO promoter and investors will receive their corresponding tokens.
- Intermediate stages: the STO promoter could include one or more intermediate stages between soft and hard cap for its fundraising. These stages would need to be defined in the STO white paper and would work as milestones.
Issuers will be able to call on the STO factory to deploy a new STO by using BKN utility tokens and ETH for the transaction. Investors, once whitelisted, will be able to purchase the corresponding STO tokens in any crypto asset for a fixed STO selling price.
Whenever an investor participates in an STO, the capital will be stored in an escrow account.
The first release of the security tokens will be made once the soft cap has been reached. The issuer of tokens will decide before the release the tranches of tokens between the soft and hard cap.
As a safety mechanism, it is important to establish that if the soft cap of an STO is not met by the pre-established deadline, the capital already deposited into the escrow account will be reimbursed to investors.
As soon as the soft cap is reached, and the first tranche of tokens is released, these tokens will begin accruing income in the form of interests or dividends, and the issuer will be legally bound to meet obligations to investors.
The payments flowing from the issuer to investors will be deposited in the escrow contract by the issuer in any cryptocurrency and paid out to investors through the same escrow contract.
Regarding the security of the STO factory, clones will be deployed through a minimal proxy pattern and the entire protocol will be upgradeable through a UUPS pattern.
Any asset or business can be broken down in fractional parts that retain the form of tokens, with equal rights and values, that can be purchased by anyone, anywhere, at any time.
Brickken offers a market leading, legally compliant, decentralized platform to perform STO’s and investment management, making a secure, transparent, convenient solution in which to raise funds through tokenization.
Brickken’s dApp architecture is modular, based on microservices that connect to each other to facilitate the usage, upgradeability, and maintenance of the protocol.
- FRONT-END: The front-ends dashboard will integrate MetaMask and an API service. The MetaMask integration is required to allow users to interact directly with the blockchain and protocol contracts, while the API service will handle KYC management, user logins, registrations, and general operations.
- BACK-END: The back-end will consist of a set of lambdas functions that serve the dashboard app, but also expose the tokenization service without the need for a dashboard. For this, the transactions that are sent through an API integration, will use Infura instead of MetaMask, to send the transactions to the blockchain.
- KYC SERVICE: The KYC service solution will connect to our existing Lambdas system. Acceptance and rejection of requests can be executed with the API or through the dashboard.
- DATABASE: The database will store useful information for the functionality that Brickken proposes to build (users that might register their emails, metadata’s, transactions, etc.).
- SMART CONTRACTS: The smart contracts will be made up of an ERC20 token contract (BKN), and a smart contract that acts as a factory for two other smart contracts;
- The escrow contract is where investors deposit money until the STO is finalized.
- The ERC20 token contract will represent STO specific tokens. The escrow contract will also be the one that issuers use to deposit the dividends/ interests that serves as revenue (yield) for the investors.
Achieving scalability and low-cost bases in public blockchain networks
Existing solutions must deal with the lack of scalability and costs associated with public blockchain networks such as the Ethereum mainnet. For this reason, the solution adopted in many cases is to use a private blockchain, renouncing decentralization as an objective.
Decentralization is a fundamental principle that governs Brickken’s existence, given the advancement of scalability and cost solutions, we are comfortable building on Ethereum’s mainnet.
To overcome this challenge, a solution is proposed based on the following flow:
Technical approach to KYC implementation
The next technological challenge is related to legal aspects. For any user to be able to invest in an asset tokenization, it is a legal requirement to successfully pass a KYC process. Brickken’s blockchain will comply with global data protection standards and applicable legislations, thus, cannot handle the personal data of users required for the on-chain KYC processes.
Therefore, Brickken will offer a hybrid solution where the KYC processes will be completed off-chain (outside the blockchain network). Users are manually registered in a whitelist in the protocol’s smart contracts. Therefore, no personal data of the user is stored in the blockchain, but its registration will trigger whitelisting and will pass through the blockchain, using smart contracts to accept users who have previously passed their KYC successfully.
To overcome this challenge, a solution based on the following flow is proposed:
- Issuers/Promoters send their KYC requests to Brickken. Brickken will have a white/blacklist to automatically resolve requests. Once resolved the issuer can now use the platform.
- The issuer is now validated and can start accepting or rejecting requests from investors.
- An unknown investor sends a KYC request to participate in an STO. Request is accepted/rejected by the issuer of that specific STO. A transaction is sent to the blockchain to whitelist the accepted investor in receiving STO tokens.
- The investor is now a validated user. The investor wants now to transfer the STO’s token to an unknown buyer
- The unknown buyer submits a KYC request to the same issuer.
- The unknown buyer has the KYC request accepted and it’s now whitelisted to receive the STO’s token.
- The validated buyer receives the STO tokens.
The dApp and BKN