Fidelity's Center for Applied Technology completes proof-of-concept with TokenSoft
Updated: Mar 4
Automating compliance with ERC-1404
In June of 2019, TokenSoft’s CEO, Mason Borda, spoke at Fidelity’s Center for Applied Technology’s (FCAT) Bits & Blocks Club, an internal learning group focused on digital assets and blockchain technology. During his presentation, Mason explained the value of TokenSoft and announced an exciting new use case in collaboration with FCAT. Below is a summary of the proof-of-concept and how TokenSoft worked with FCAT to use the ERC-1404 token standard.
FCAT is Fidelity’s Research & Development arm, operating with a team focused on researching and creating products around digital assets and blockchain technology. As part of the club efforts, they had previously utilized the concept of gamification but found the process was manual and restrictive.
The Bits and Blocks Club used TokenSoft’s Platform to launch an ERC-1404 token—a simple restricted token standard. TokenSoft helped FCAT design and issue the BBT restricted token with their unique rewards program and compliance requirements. Post issuance, TokenSoft integrated the BBT token contract into TokenSoft’s Token Administration Platform which can be used by financial institutions like Fidelity. Fidelity employees used the BBT token in a closed-loop rewards system designed to encourage employees to attend internal events and other activities.
This ERC-1404 token is a standard designed to enforce complex regulatory requirements for blockchain-based assets such as whitelisting investors or approving users to send and receive the assets. TokenSoft clients use ERC-1404 to enforce a variety of banking, securities and tax regulations internationally as they pertain to digital asset securities. The ERC-1404 standard enables TokenSoft clients to place a digital representation of an asset onto the Ethereum blockchain with the confidence that their compliance requirements are being adhered to while preventing unauthorized transactions from occurring. For example, ERC-1404 is being used by multiple issuers in the SEC registration process for their securities on EDGAR as detailed in our recent post, ERC-1404, one year later.
“Our team was excited to test this new token with Fidelity’s club members. For employees, it’s a real use case for restricted tokens and gives them an opportunity to get hands-on experience with tokens, wallets, and other blockchain technology to understand how it works and how we might apply this in other areas,” said Juri Bulovic, Blockchain Product Management, FCAT.
“We were able to reach this milestone because of the TokenSoft team’s deep-seated knowledge in how to leverage blockchain technology to solve the problems we presented.”
Token Implementation and Administration
TokenSoft leveraged multiple components of its technology to deliver a whitelisting user flow, restricted tokens, and ongoing administration framework to FCAT.
Custom Platform: Branded onboarding portal to whitelist club members’ Ethereum addresses
ERC-1404 Design and Deployment: Bespoke implementation of ERC-1404 to create restricted tokens that automate business processes including:
Restricting transfers between specific groups (e.g. department whitelists) while allowing transfers among employees in the same group.
Capping the amount gifted or received by employees necessary for FINRA Gift Rule requirements.
Restricting across all participants the value of tokens that can be redeemed for branded items in the company’s store in any calendar year.
Token Administration: Ongoing administration of tokens, such as adding or removing employees from the specific group whitelists, ongoing minting of tokens, updating transfer restrictions for each year, and other requirements.
TokenSoft and Fidelity program managers jointly served as administrators. Fidelity program managers used TokenSoft’s back-office Token Administration Platform to manage their restricted tokens with ease.
“We are excited to complete this pilot for a unique implementation of restricted tokens with FCAT. This project demonstrates the primary value of modernizing and automating business processes for securities and other compliance laws to eliminate manual work by multiple parties,” said Mason Borda, CEO of TokenSoft.
If you think we can help implement some of your business processes on the blockchain or are interested in issuing digital securities with restrictions built natively into the token, don’t hesitate to reach out to us at tokensoft.io.