[NEWS] Daiwa Securities and Ginco collaborate to conduct PoC by issuing security tokens on public chain

On the 30th of last month, Daiwa Securities Group and Ginco announced that they would conduct a proof of concept (PoC) to issue security tokens and develop a platform.

This PoC will be conducted in collaboration with Daiwa Securities and Fintertech, both subsidiaries of Daiwa Securities Group.

The amendment to the Financial Instruments and Exchange Act and related government ordinances came into force on May 1, 2020, stipulating the "right to display electronically recorded securities," making it possible to handle security tokens in accordance with the law.

Daiwa Securities, which will be conducting this PoC, will commercialize security tokens in February 2022. To date, the cumulative transaction amount of asset-backed security tokens has reached 22.6 billion yen. As of November 30th of this year, Daiwa Securities is the top company in Japan in terms of the amount of security tokens handled.

Currently, security tokens issued in Japan are mainly issued on private chains and consortium chains. However, there are also security tokens issued on public chains globally. For example, the European Investment Bank (EIB) issued bonds on Ethereum (ETH) in April 2021, while Siemens and ABN Amro issued bonds on Polygon in February and September of this year, respectively.

There are various challenges when issuing security tokens on public chains. On the other hand, the benefits of free external references and transfer instructions, and their usefulness in terms of transparency and interoperability, are the reasons for their increasing use globally, he explains.

Given this background, Daiwa Securities has teamed up with Fintertech, which is well versed in building financial systems using public blockchains, and Ginco to aim to issue security tokens on public chains and develop an issuance platform.

Verifying customer asset protection in the event of a hacking incident

Challenges in issuing security tokens on public chains include "hacking and leaking private keys" and "transaction confirmation under the Act on Prevention of Transfer of Criminal Proceeds." In this PoC, the focus will be primarily on hacking, and verification will be conducted on how customer assets can be protected in the event of actual damage.

In this PoC, Fintertech will grant SBT (Soulbound Token) to the addresses of two investors (Investor A and B) prepared on Ethereum. The issuer will then issue a security token on Ethereum. The security token will be sold to Investor A through a small private placement without going through a securities company. Investor A will then go through the process of selling the security token to Investor B.

The smart contract is designed so that the security token cannot be sold or acquired only by the investor who has been granted the SBT, which means that it is designed to prevent unauthorized transfer even in the event of a private key leak due to hacking.

In addition, it is planned to show that the smart contract design of the security token and SBT can prevent problems from occurring in advance or restore the original state in three cases: "if the investor's encryption key is stolen," "if the issuer's encryption key is stolen," and "if the SBT issuer's encryption key is stolen."

▶︎PoC Overview

The PoC is scheduled to be carried out in January 2024. After the implementation, they plan to report the results of the verification.

Reference:Announcement
Image: Quoted from the announcement

Related articles

Osaka Digital Exchange to start security token trading on "START" next month

Mitsubishi UFJ Trust and Banking Corporation to collaborate with Ginco to offer Japan's first "cryptocurrency trust"