Recently, we reported on creation of the Financial Securities Protocol on EOS, a truly revolutional development in the infrastructure for digital assets. Ed Silantyev, the FSP creator, exclusively to Security Token Newspaper, explains why he has chosen EOS, which new exiting opportunities the FSP opens for, as well as what cannot be tokenised:
Q) First of all, why EOS, why not Ethereum, like pretty much everybody else?
A) EOS has been designed with scalable and high-throughput decentralised applications in mind. It has been the most active blockchain since its launch in Summer 2018 and is projected to remain as such. In our whitepaper we equate EOS to a high-performance decentralised state machine, which is a very precise description of the EOS network. Such properties contribute directly to the mission that FSP is aspiring to achieve – “… to enable interrelated, scalable and compliant financial applications to be built, maintained and audited ” Ethereum main-net is currently the host of the majority of security token platforms, but it may not have enough bandwidth for an industrial grade, resource-heavy application. Ethereum have a few projects in pipeline that could potentially resolve the scaling issues, such as side-chains and sharding. FSP is a very big proponent of chain co-opetition and inter-blockchain communication is where the most value can be derived from. There have already been successful attempts to transfer tokens between Ethereum and EOS
Q) What can your protocol do what others cannot?
A) FSP takes a very abstract stance on the types of securities that can be digitised using the protocol. While many current security token platforms have a laser focus on privately issued equity, FSP takes a more general view of what types of securities can be digitised using the blockchain technology. As such, FSP attempts to solve a super-set of the problems that the existing platforms are trying to solve.
Q) Will you give a simple yet detailed description of how it functions:
A) FSP is a set of modules, that when implemented, represent a constrained financial system with its own regulatory logic. The entry point into the system is designated by registry module – this module performs any KYC / AML as well as investor accreditation checks for various types of entities. The gatekeeper of the whole system is fsp.regulator. This module is responsible for constraining the actions of other modules which call its validation methods during the execution. fsp.security is an abstraction used to represent an asset in the FSP ecosystem – it is intended to represent a financial instrument of any complexity – be it a privately issued equity or a convertible bond. Auxiliary modules of the network include fsp.exchange, which is responsible for aggregation of liquidity and fsp.communcation, which is responsible for propagating essential information onto the various modules and entities in the network.
Q) What is the difference between financial systems 2.0 and 3.0?
A) Financial Securities Protocol is the embodiment of the Open-source Financial System 3.0 – building on from Financial System 2.0, which has provided us with means to faster and more efficient primary and secondary financial markets by utilising internet and was able to scale due to decreasing hardware costs. Many processes have remained analogous due to “paper dependency” and continue to generate a bulk of costs for financial organisations.
Q) How do you see blockchain in finance in 1, 3, 5 years?
A) I see a gradual convergence between blockchain and financial markets. Blockchain facilitates self-compliance of the financial securities, minimising the amount of external interactions needed to process associated transactions. Financial organisations and regulators are already adopting the technology for various verticals and I expect this trend to continue.
Q) What cannot be tokenized?
A) Theoretically, anything can be tokenized as long as parties agree that a token is a legal representation of some asset. Practically, there are many roadblocks that could hinder the “tokenize everything” mentality. The question that often gets overlooked is whether something needs to be tokenized, as there is a point where the benefits of tokenization do not outweigh the costs. The examples of such assets are generally the items that are hard to standardise, for example, personal loans.