What is ERC-884?

In this post ”What is ERC-884?”, you will learn all about ERC-884, obligations of the Securities and Exchange Commission, utilization of an Identity hash and many more.

ERC-884 allows for the generation of tradable ERC-20 tokens, each of which represents a numberless Delaware corporation share.

About ERC-884

According to David Sag’s standard, each ERC-884 token represents a specific share in a Delaware corporation. The standard was created for equity transactions, and the token’s owner must be whitelisted, which is a cryptographic protocol feature. In order to comply with securities legislation, ERC-884 issuers must create an off-chain internal repository.

Due to recent laws, businesses in the US state of Delaware can now use blockchain system to control share registrations. ERC-884 intends to use it in a way that each token is labeled as a stake of a Delaware-based corporation.

To meet with requirements ERC 884 also comprises the analysis:

• The identities of token holders must be validated, and they must be added to a whitelist.

Token owner whitelisting is not secured by an unique crowdsale contract; instead, the ERC-884 mandates whitelisting for all token holders. The whitelist is still an important part of the token contract, even though authorizing crowdsale contracts can use it to confirm qualification.

• A record of ownership can be compiled by the corporation.

It must allow the corporation to compile the ownership record authorized by Sections 219 and 220 of The Act, according to legal standards. Regulators also mandate information recording and the recording of share exchanges.

• Tokens can only have their entire value; partial values are not allowed.

Each ERC-884 coin must represent a single, fully paid-up uncountable share. It is not necessary to keep track of data on partially paid shares. Similarly, an ERC-884 token does not have to be tied to a specific number of shares.

It was enough to realize that an investor owns a specific amount of it. In this case, individually numbered shares are no longer necessary.

• Shareholders who lose their private keys or tokens must send them to a new location.

Shareholders who have forgot their private key or lost access to their tokens must be permitted to have their address canceled and their tokens re-issued to a new address via a mechanism.

• To fulfill specific “Know Your Customer” (KYC) conditions, ERC-884 requires the deployment of an off-chain registry.

The developer should be able to retrieve the identification and geographical site of any ETH address, encrypt that data, and use the hash function to compare the resulting hash to the hash included in the contract, ensuring data consistency.

ERC-884 tokens are ERC-20 compliant, which means they may be traded on any crypto market that accepts ERC-20 tokens, allowing the company to forgo using a traditional system.

ERC-884: A protocol for tokenizing shares

The 149th General Assembly of the Delaware State Senate recently enacted Senate Bill No69. n Act to Amend Title 8 of the Delaware Code Relating to the General Corporation Law, often known as ‘The Act’. Consequently, the Delaware General Corporation Law now expressly permits the use of blockchains to keep corporate share registries up to date.

In light of this, I’m pleased to inform that ERC-884 has been approved as a draft Ethereum token specification.

ERC-884 enables the generation of tradable ERC-20 tokens, each of which symbolizes a numberless (or vanilla) Delaware corporation share. ERC-884 is a type of stock that can be offered by any Delaware corporation, private or public.

By using an ERC-884 token, a company can raise resources in a way that complies with Delaware Corporations Law. But without the requirement for a special share registry or the engagement of a conventional stock exchange or transfer agency.

The Fundamentals

Over and beyond the baseERC-20 standard, ERC-884 tokens enable adherence with the basic rules:

The identity of token owners must be validated. Instead of requiring owner whitelisting to be enforced by a separate crowdsale contract. ERC-884 demands that all token owners be whitelisted. The whitelist can be used in conjunction with crowdsale contracts to ensure eligibility. But it is still a part of the token contract itself.

According to Section 224 of the Act, the token contract must cover the following three services of a corporation’s stock ledger:

  1. It must allow the corporation to compile the shareholder roster required by Sections 219 and 220 of the Act.
  2. Also it must keep track of the data required by the Act’s Sections 156, 159, 217(a), and 218.
  3. It must keep track of share transfers as required by Article 8 of Title 6’s Subtitle I.

No partial ERC-884 tokens

Each ERC-884 token must match to a singular unnumbered share that must be completely paid for. No need to keep records of data about partially paid shares. Likewise, an ERC- 884 token does not have to correlate to a precise number of shares. Knowing that a shareholder holds a given number of shares is sufficient. Individually numbered shares are unnecessarily cumbersome in this situation.

Lastly, a procedure must be in place for a shareholder who has misplaced their private key. Or otherwise lost access to their tokens to have their address terminated and their tokens re-issued to a different address.

Obligations of the Securities and Exchange Commission

The Securities and Exchange Commission (SEC) provides further guidelines for how a crowdsale should be conducted and what data must be publicly disclosed. The ERC-884 standard, though, does not cover this data, even if it does allow such needs.

For instance, the Securities and Exchange Commission (SEC) mandates that a crowdsale’s website indicate the sum of money generated in US currency. To facilitate this, a crowdsale contract minting these tokens must keep track of the USD to ETH exchange rate (through an oracle or other technique) and note the ratio at the moment of minting.

In addition, depending on the type of fundraising, the SEC (or another statutory authority) may impose restrictions on the number of shareholders who can participate. The standard includes the holderCount and isHolder functions, which a crowdsale can use to ensure that no restrictions have been violated.

Utilization of an Identity Hash

In full compliance with The Act, crowdsale adopters must be able to submit an up-to-date list of all shareholders’ names and addresses. It is not ideal to incorporate certain data in a public blockchain, both for security and for economic reasons.

It is highly discouraged to store arbitrary string data on the blockchain.

Implementers must keep an off-chain private database with the owner’s name, home address, and the Ethereum address where their ERC-884 tokens are stored. The implementer must then be capable of extracting the name and physical address of any Ethereum address, encrypt that data. And also compare the resultant hash to the hash stored in the contract using the hash function. Thereby confirming the accuracy of their data. The implementation of this system is left to the implementer’s discretion.

It’s also ideal if the implementers provide a REST API endpoint similar to this one.

GET ethereumAddress from https://host>/pathPrefix>/:ethereumAddress -> [true|false] to allow third-party auditors to confirm that a specific Ethereum address is known as a validated address by the implementers.

It is up to the implementers to choose how they will verify a party’s identification, which is beyond the purpose of this specification.

Stakeholders Who Have Forgotten How to Access Their Shares

A conventional share registry is usually run by a Transfer Agent, who is tasked with keeping the register up to date. And also responding to shareholder inquiries. Reissue of share certificates is a typical request from shareholders who have misplaced or destroyed their originals.

This request can be handled by token implementers using the cancelAndReissue function, which must make the necessary adjustments to guarantee that the old address now refers to the new one and that rejected addresses are not recycled.

The Nuts and Bolts: Extending the ERC-20

The below are the essential features of the ERC20 token, as written in Solidity code:

To generate tradeable ERC-20 tokens, the ERC-884 protocol is employed. The ERC-884 token standard is intended for equity transactions in which the token’s owner is whitelisted through the use of a smart contract.

Institutions in the US state of Delaware can handle their share registers while taking advantage of blockchain technology by using the ERC-884 protocol. The ERC-884 token functions as a derivative share for any Delaware corporation.

Because ERC-884 is compatible with ERC-20 tokens, it can be simply traded on any crypto exchange that accepts ERC-20 tokens. Firms can bypass utilizing standard token distribution process in this way.

The Fundamentals

Over and beyond the ERC-20 standard, ERC-884 tokens enable adherence with the basic rules:

The identity of token owners must be validated. Instead of requiring owner whitelisting to be enforced by a separate crowdsale contract, ERC-884 demands that all token owners be whitelisted. The whitelist can be used in conjunction with crowdsale contracts to ensure qualification, but it is still a part of the token contract itself.

According to Section 224 of the Act, the token contract must serve the following three services of a corporation’s stock ledger:

  • It must allow the corporation to compile the shareholder list required by Sections 219 and 220 of the Act.
  • Also it must keep track of data required by The Act’s Sections 156, 159, 217(a), and 218.
  • It must keep track of share transfers as required by Article 8 of Title 6’s Subtitle I.

More information on ERC-884

The 149th General Assembly of the Delaware State Senate recently enacted Senate Bill No69: An Act to Amend Title 8 of the Delaware Code Relating to the General Corporation Law, often known as ‘The Act.’ As an outcome, the Delaware General Corporation Law now expressly permits the use of blockchains to keep corporate share registries up to date.

ERC-884 enables the generation of tradable ERC-20 tokens, each of which symbolizes a numberless (or vanilla) Delaware corporation share. ERC-884 is a type of stock that can be offered by any Delaware corporation, private or public.

By using an ERC-884 token, a company can increase funds in a way that complies with Delaware Corporations Law. But without the requirement for a special share registry or the involvement of a traditional stock exchange or transfer agency.

Reference Implementation and Test Cases

At github.com/davesag/ERC884-reference-implementation, you can find test cases and a reference implementation.

Control of Permissions

Anyone should not be allowed to add, remove, edit, or replace verified addresses. The standard does not specify how access to all these functions is managed. Although the reference implementation provides a simple form of access control that might be easily extended.

Backwards Compatibility

In order to comply with the criteria of The Act, the ERC-884 standard provides the smallest possible update to the existing ERC-20 standard while keeping compatibility with ERC-20.

The standard is intended to keep ERC-20 tokens compatible, with the following caveats:

  1. Because the tokens must not be divisible, the decimals function must return 0.
  2. The transfer and transfer
    Transfers to unverified addresses must be prohibited, and a list of stockholders must be maintained.
  3. Shareholders who transfer their remaining tokens must have their names removed from the shareholder list.

Proviso 1 appears to use such information if it is available. Therefore it is not incompatible with contemporary wallets or exchanges.

If a transfer to a non-verified address is attempted, Proviso 2 will cause the transfer to fail. This is built into the design, and implementers are urged to emphasize it to market players. Although it is understood that this will make ERC-884 unappealing to some exchanges. It is a requirement of the Securities and Exchange Commission (SEC) that shareholders of a firm give verified names and addresses.

Proviso 3 is a point of implementation.

Furthermore, instead of returning a bool for successful or failed completion of state-changing operations like addVerified, removeVerified, and updateVerified, ERC-884 demands that implementations throw an error (ideally using the future require(condition, ‘fail message’) syntax).

Summary

Instead of using a conventional means, ERC-884 tokens provide a means for a Delaware corporation to establish an official share register using an Ethereum smartcontract deployed on the Ethereum blockchain.

Because ERC-884 tokens are compatible with ERC-20 tokens, they can be exchanged on any cryptocurrency platform that supports ERC-20 token trading. Enabling the business to avoid using a conventional stock exchange, share registry, or transfer agent.

The MIT open-source license has been used to provide a reference ERC-884 implementation. Developers that are keen are allowed to perform around with it as they see suitable.

Here is a list of more related topics you might find interesting:

  1. Blockchain Technology
  2. Defi
  3. NFTs
  4. DAOs
  5. Crypto
  6. Web 3.0
  7. Altcoin Tokenomics
  8. Metaverse
  9. Smart Contracts

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