Structuring of digital securities
The structuring of a digital security issued via Cashlink needs to incorporate some important technical aspects. We've put together a checklist with the most important items that need to be considered when designing the terms of the digital security.
Name: The name serves as a human-readable identification of your digital security on the DLT-network. Computer programs identify your security by a unique identified - the address.
Symbol: The three or four-digit symbol is used to identify the digital security on the DLT-network even more quickly. It's therefore often used instead of the complete name. Allowed characters are uppercase letters [A...Z] as well as [0...9].
Using the calculation factor, you determine what value an unit of the digital security should represent. In the simplest case, one unit corresponds exactly to one unit of the underlying asset. The calculation factor, in this case, is 1. The higher the calculation factor, the more digital securities you can issue.
For example, consider you're tokenizing a company that has a registered capital which the token should represent. If the calculation factor is set to 100, this means that 100 units of the token balance represents € 1 of the registered capital.
A lock-up period is often defined when securities are issued. During this period, it is technically ensured that your digital securities cannot be transferred between investors. Thus you have the possibility to enter the primary market alone without the influence of investors.
Define the rights that each investor should be entitled to. All rights and obligations under the asset contract shall be represented by the tokens on the DLT-network.
The number of units assigned to an address is owned by the person in control of the address' private key. A single address cannot be assigned to more than one person. This doesn't limit the possibility to use pooled custodial wallets - it simply describes that the entity holding the private key to this pooled wallet is seen as having ownership of the tokenized rights.
The rights under the asset contract are not represented by a security or certificate and the investor shall not be entitled to claim securitization.
The security may involve payment scenarios where investor get a dividend, interest payment or similar. As the securities can often be transferred, a date and time must be defined where a list of current owners of the digital security eligible for the payment is queried from the DLT-network ("snapshot").
The security contract can define circumstances where the rights and obligations coming from the contract are no longer valid. One important example is the point in time where a bond is paid back by the issuer. In these cases, the issuer will perform an operation in the DLT-network where the balance for the investor is reduced ("burned"). This operation does not involve any cooperation from the investor.
In case investors lose access to their private key and the recovery mechanism fails, it often makes sense to incorporate terms that govern under which circumstances the issuer will be allowed to use the technical possibility of re-issuing the digital securities to a new wallet of the investor.
In the case of a hard fork or if the network becomes unusable, the issuer can technically decide which protocol, network, or part of the network to use. You can define more detailed off-chain governance structures for such a case in the asset contract.
Smart contracts can be updated by the issuer due to security reasons. You can define more detailed off-chain governance structures for such a case in the asset contract.
The content of the asset contract will be set out in the smart contract underlying the asset by uploading a hash digest of a PDF file containing the asset contract. You should include the address of the smart contract within the asset contract.
The content of this asset contract and of all its amendments should be stored in public immutable storage where it can be retrieved by a cryptographic hash of a file with such content. The investor should have access to the asset contract and all amendments by inspecting the smart contract which is publicly available via the DLT-network.
Tokens representing the rights under the asset contract are freely transferable and all rights and obligations from this contract can only be transferred by means of transferring at least one token. Fractions of a token should not be transferable.