Securities Market Series: (1) Preparing for Issuance
By Mels Dees

Aug 23, 2019 - Amsterdam

At Dusk we are creating a Privacy-oriented Blockchain Protocol for Digital Securities. We aim to remove technical barriers that have hindered mainstream issuance and trading of products such as security tokens. Compliance, auditability and privacy are built into the permissionless Dusk Network, and it provides a Confidential Security Token Standard (“XSC”), that is capable of removing the need for centralized middlemen in the landscape of regulated financial markets.

Dusk Network - Securities Market Series: (1) Preparing for Issuance

Our focus on security tokens allows any company or proposition to deploy their idea onto the Dusk blockchain. Parties emitting a security token are called issuers, and the process of selling and distributing these tokens is referred to as issuance. We are providing technical support to our first-wave partners to set up and test their security token propositions on top of our XSC-standard.

Through the past year we have delved deeply into their requirements, design decisions, and propositions. We have found common questions and steps that have structured our robust Security Token Offering (STO) framework that we think are worth sharing. This allows for an interesting behind-the-scenes perspective of STO preparation.

If you are new to our blog, we recommend reading the previously released series:
This article is the first of our securities market series in which we aim to provide a deeper understanding of what we are working towards with Dusk Network.
Why would we want to tokenize securities?

Many industry players are appraising the tokenized securities landscape, and many of them are doing this for their own reasons, however we can discern a few key pillars:

  • Increased liquidity
  • Fast & instant settlement of securities trades
  • Automating compliance operations & other procedures
  • Reduction of costs

Additionally, the blockchain space offers a novel investment crowd, and empowers high quality companies to raise their funds in a new way. Before we dive into how to conduct a successful fundraiser, let’s first take a look at what is being sold: the security.

Your very own security token

Securities come in many shapes and forms. One of many flavors would be company shares, that give you a right to the profits of the underlying company, and could grant voting rights. Another option is debt-based, for instance bonds (similar to a loan, whereas money is borrowed from the public) are to be repaid with a certain interest. More complex products also exist. Think of a right to profit from a revenue stream of a specific product line that a company is running. Although the possibilities are endless, a security will typically give you the right to something.

Before you start thinking about conducting a fundraiser, your main question should be:
“What am I selling?”

The STO market is very different from the Initial Coin Offering (ICO) market, as we expect propositions to require a lot more maturity. Potential investors will judge existing cash flows, profits or losses, head count, and strategy, rather than simply buying into an idea.

Once you have selected the best type of security for your company, it is time to think about eligible participants:
“What investor audience would I like to reach?”

Due to various regulations it will be inevitable to exclude certain participants from acquiring your security. Often, exclusions are based on:

  • the investors country, and;
  • status as an accredited, professional or retail investor.

The way the sale is structured, and where it is structured, requires deep understanding of the target audience.

Through a whitelist the issuer of the STO can guarantee that only eligible participants partake. Dusk Network provides whitelisting functionality such that issuing companies can prevent ineligible parties (who have been declined from entering, or have not yet been accepted by the issuer) from participating.
Once these structuring and legal questions are answered, we start to enter the fundraising stages:
“What type of fundraising should I use?”

Fundraising can be done through various methods. There is the Traditional route, where a company engages brokers / underwriters for their sale in return for a premium/profit for their services.

On the other end, there is the Dutch Auction; this type of sale allows any investor to put in a bid without knowing what others are offering to pay. After the bidding phase, the highest price at which every available share can be sold becomes the price for all the shares.

Additionally, there are more exotic options such as a Direct Listing (onto a Stock Exchange), where shares are sold directly onto the exchange, giving investors equal access.

“What are the tradeability options for my security?”

Performing an initial offering is a well understood field in the cryptosphere. However, it’s important to take into account the future tradeability of the security token (after issuance):

  • Investors can only buy from and sell to the issuer.
  • Trade on OTC markets.
  • Trade on Stock Exchanges.

In order to list on a Stock Exchange, in most jurisdictions, the issuer needs to deposit its securities with a Central Securities Depository (CSD) that is connected to the exchange. Therefore, if you want to offer more than just an OTC market for your security token, or ultimately want to list your securities on a Stock Exchange, you have to think about future trade requirements. It is crucial to be familiar with the listing, legal and technical requirements such that there is compatibility down the road.


Dusk Network is a privacy-oriented blockchain protocol purpose-built for security tokens. We have provided some insights in the questions that our issuing partners are facing. All of these questions tie into the legal structuring of the sale. Main considerations are:

  • Type of security
  • Investor audience
  • Fundraiser type
  • Tradeability

Answering all of these questions is a good check-list before launching an STO.

In our next series you can join us for a deep-dive into the primary and secondary market, and learn all about market dynamics and tokenization challenges to overcome.

Dusk — Technology for Securities

Dusk Network is an open-source and privacy-oriented blockchain based on years of academic research. You can use Dusk Network to create smart contracts that control digital assets and securities.

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