Use Cases

What is it
A smart contract is an agreement between multiple parties expressed in code. Smart contracts are executed by the blockchain and help verify, facilitate and record transactions. These transactions are trackable and irreversible. Our confidential smart contracts allow companies to use public blockchain while maintaining complete data privacy.

Complete data privacy
Dusk Network is the first blockchain with native confidential smart contracts. This allows parties to benefit from our highly scalable infrastructure (one of the major benefits of public blockchain) with the peace of mind that their data remains confidential. In other words, enterprises can make use of our confidential smart contracts with confidence knowing that their transactions are secure and private.

What is it
A security token is a tradable financial asset that utilizes a blockchain to automatically store and validate transactions. Assets can be categorized as either real, financial or intangible. Digital financial assets may seem intangible, or non-physical, but in fact they do represent a claim of ownership of an entity, like a public company or commodity. Digital financial assets like security tokens help improve fractional ownership and liquidity.

XSC security token standard
Even though all transactions are automatically recorded, the blockchain does not replace securities law. Instead, the operational reality on the blockchain needs to comply with securities law, meaning the issuer of security tokens is in need for a specific level of control over the tokens. For example, in the case a company shareholder loses his private keys, he (or she) should still be able to exercise his ownership rights by law. The XSC Security Token Standard handles just that and provides all the necessary tools to be in control.

Business opportunities
As a company or platform seeking to raise capital you benefit in multiple ways from Confidential Security Tokens

1. Security Tokens are programmable, reducing cost by automation.
2. Allow for easy integration by industry parties.
3. Efficient to execute corporate actions such as dividend payments, or calling a vote.
4. Automated audit trails reducing overhead.

Investor opportunities
On the other hand, investors benefit from Security Tokenization, because

1. Security tokens are enhanced with compliance and legal logic, and reduce company’ overhead through automation. Giving them the potential to save administration and legal costs down the line, and be more liquid (traded easier) than assets recorded on paper.
2. Fractionalization of shares is now cost-effective, making microtransactions feasible.
3. Increase interaction of shareholders and voting engagement.
4. Blockchain takes down data silos, enabling you reconcile and automate (fund) administration.

A digital voucher
Utility tokens are often used as a type of digital currency that can be spent within blockchain-based ecosystems.

Privacy-compliant
In most blockchains, spending behavior, balances, and other sensitive information is shared in an unencrypted form with the entire network. This lack of privacy is exactly what has deterred enterprises from using public blockchain solution. The Dusk Network addresses these privacy concerns head-on. Zero-Knowledge Utility Tokens rely on advanced cryptographic primitives that guarantee that the transmission of data is private, safe and secure. Thanks to this layer of privacy, and the versatile zero-knowledge proof system PLONK, use cases such as digital identity / self-sovereign identity become a distant reality. 

2Token initiative
As an Advisory Board member of 2Tokens, we see the tokenization agendas in the Netherlands and wider Europe being accelerated. Now the initiative selected Dusk Network as the technology provider for their financing needs. Once the 2Tokens fundraiser is completed 2Tokens will commence with the issuance of the Zero-Knowledge Utility Token TWO on Dusk Network.

Stock Exchanges use blockchain technology to manage their administration more effectively, and enable the trading of security tokens.

What is it
A securities exchange (or stock exchange) is a venue where traders can effectively buy and sell securities, such as shares, bonds or other financial instruments. It can be seen as a continuous auction market, where traders use the electronic trading platform to swap ownership claims. A security token exchange is effectively a stock exchange that supports the trading, deposit and withdrawals of security tokens.

Opportunities
Blockchain has the potential to fit well into the custodial and financial market infrastructure. Providing efficiency gains that bring down the cost of issuance, fundraising, and listing down for platform and infrastructure providers, and thus their customers. In practice this means it becomes viable for these market players to serve the SME segment further down the long tail, increase the tradability of private securities, and more. With the potential of adding various self-service elements alongside core products and services.

A digital shareholder register is a list of owners of a company’s shares, updated on an ongoing basis, and directly available to all relevant parties.

Shareholder Register
The main purpose of a shareholder register has always been to provide a clear record of share owners and beneficiaries. This record is updated whenever shares change hands, or used as the denominator for dividend payouts, or voting right distribution. You could say it is the ‘source of truth’ for everything that has to do with a company’s shares.

Opportunities
By using blockchain technology firms can register their shareholder registry on the blockchain. We call this tokenization. When creating a digital blockchain-based share registry, the records of share ownership become automatable, and reconcilable by businesses and shareholders that rely on that data. 

For example, developers of a digital share registry, can make sure that the rights and obligations of shareholders are programmed into the confidential smart contract that governs the shares. In other words, the digital shares are enhanced with legal logic, guaranteeing that the shareholders’ rights and obligations (as spelled out in the shareholder agreements and articles of association) are met, before any change can be notarized onto the blockchain.

Whenever the company, or a shareholder, decides to share their data with an integration partner, such as another business (i.e a cap table management firm, chamber of commerce, UBO register, et cetera) or a financial institution (i.e. security token exchange, bank, or other), the integration partner can be sure that it is looking at the most recent version of the shareholder registry. After all, any updates made are automatically reconciled across all the firms that rely on that data. Always up-to-date.

Further automation
Once a digital share registry is created, and enhanced with legal logic, procedures like dividend payments and executing voting rights can be automated and supported by integration partners. Saving both company and shareholders time and effort, while keeping the data reconciled.

Firm24 and LTO Network
Interested to learn more? We are working on this use case together with Firm24 and LTO Network to tokenize equity for thousands of Dutch companies. Coindesk coverage.

Market
The majority of securities are private, unlisted securities. These assets are predominantly traded Over-The-Counter (OTC), and unlike listed securities - not traded on regulated stock exchanges or through custodial platforms.

In most cases, the involvement of brokers and lawyers is needed to trade these securities, i.e. to find counterparties, and complete the contractual side of the deal. In this process, it is not uncommon to incur costs in the range of 2,5% -15%.

Security Tokens
XSC based Security Tokens manage whitelists, and can be programmed to enforce the restrictions stipulated in the applicable shareholder documents. Whitelists are maintained by the issuing company and are used to restrict trading only to eligible investors (for example: investors are allowed to purchase the companies' securities, only after passing the company's investor eligibility checks.

Opportunity
Smart Bulletin Boards can be used to indirectly match qualified buyers and sellers of security tokens. If both parties come to terms and a deal is struck, they can execute the trade trustlessly using the XSC-based security token contract to settle the transaction instantly on the Dusk Network blockchain. Removing middlemen, and friction in markets, whilst opening up new ways for shareholders to sell their securities - faster and for fairer prices.

"The directive establishes a series of measures meant to benefit both listed companies in the European Union (EU)/European Economic Area (EEA) and their shareholders by enforcing greater transparency and efficiency in terms of shareholders’ identification and rights to vote. It also aims to improve communication by the issuers – through the chain of intermediaries – to their shareholders." source: Standard Chartered.

Market
With the implementation of Shareholder Rights Directive II (SRD2), there is an increasing regulatory demand to encourage long term shareholder commitment and discourage excessive risk. The main objective of this directive is to improve transparency and facilitate shareholder engagement. The directive sets the right to identify shareholders and mandates intermediaries like custodians to take an active role in providing information. SRD2 also aims to facilitate the process of voting and exercising other shareholders’ rights on an international level, by requiring intermediaries to transmit corporate actions and general meeting or proxy voting announcements without any delay.

Opportunity
Tokenization provides a possible solution for custodians and intermediaries to comply with this directive, by having direct access to a single source of truth and a consolidated overview of all asset holders. Whilst providing opportunities to offer more services to encourage shareholder engagement and data analyses.

Custody is about the protective care or guardianship of security tokens. From a purely technical perspective, the wallet that holds the security tokens is the custody solution. When security tokens move from the investors wallet to a exchange, or custodian, they change custody.

Self Custody
The 'XSC' Security Token Contract that governs security tokens in the Dusk Network, is designed in such a way to maximize security, and minimize risks of fraud and theft. Shareholders can choose to self-custody and rely on a myriad of measures. One of these measures is the enforcement of whitelists, which only allows registered, and fully-vetted individuals to trade security tokens. Other preventive measures are threshold and multi-signatures that are supported by the wallet software, and the ability of the issuing company to freeze and force-transfer 'misplaced' security tokens at their discretion.

Yet, for institutional investors, high net worth individuals and corporations that is not enough. Additional security measures are warranted against potential threats. 

Opportunity
Institutional Security Token Custody providers are regulated entities that provide custody solutions to aforementioned parties. They offer professional solutions that cater to the many demands of their clients. From a security perspective, these can be cold storage safekeeping, authorization checks and permission management. Additional services may include providing access to trading venues & liquidity, asset-backed borrowing, data analytic capabilities, a tailored user experience and more. 

What is it
DeFi applications leverage decentralized networks to create financial applications via trustless and transparent smart contracts that run as programmed, removing the need to for intermediaries. In simpler terms, DeFi is financial software built on the blockchain that can be used to piece all kinds of products together like lego blocks. 

Opportunities
DeFi applications aim to be highly accessible and make financial services available worldwide. DeFi is heralded to bring worldwide financial inclusion and open finance. Due to the sensitivity of financial services’ data, it is paramount that DeFi applications are created with data security and privacy in mind.

Examples
The largest category of DeFi applications by far is borrowing and lending, capturing 75% of total DeFi market value of $826M USD*. Among them, the use of stablecoins is enormous. Stablecoins, a type of DeFi, are a class of cryptocurrencies that offer price stability by the backing of reserve assets. Other examples of DeFi include decentralized exchanges, assets, derivatives, and payments.

*1st of May, 2020. For the latest stats and figures visit defipulse.com

DeFi and Dusk Network
Dusk Network is well suited for the creation of privacy-respecting DeFi solutions. Due to the privacy guarantees in confidential smart contracts, DeFi applications such as lending and borrowing platforms can create decentralized applications that adhere to compliance principles and general data protection legislation.