Transfer Rules

As a Virtual Asset Service Provider, registered with and regulated by the Cayman Islands Monetary Authority, MonetaForge provides Design, Mint, Issue and Administration (DMIA) services to enable Permissioned Security Tokens, enforcing regulatory (USA SEC and other regulatory jurisdictions) restricted security transfer rules of the tokens via Smart Contracts on the blockchain implementing the industry standard of ERC-3643 and OnChain IDs.  

This model ensures enforcement of the USA SEC Reg D 12 month seasoning period restrictions, such as only being able to sell to Accredited Investors in USA. Financial markets, especially private markets, are craving the same level of efficiency, accessibility, and liquidity that is provided by the use of Distributed Ledger Technology (DLT) by utility tokens. However, security tokens cannot be permissionless tokens like utility tokens, which can be transferred to anyone. They must be permissioned tokens in order to track ownership and make sure that only eligible investors can hold tokens, in order to comply with securities laws. The open-source ERC3643 token standard was designed to address the need to support compliant issuance and management of permissioned tokens, that are suitable for tokenized securities, either on a peer-to-peer basis or through regulated trading platforms. 

The ERC3643 token standard  ensures that an investor cannot become a holder of any digital securities without fulfilling all compliance requirements. Furthermore, regulators can affirm the issuer’s compliance by auditing the smart contracts that underpin the entire life cycle of the security token. This innovation offers a secure, transparent, and efficient environment for managing security tokens while enforcing on-chain compliance.
The main components of the solution are:

1. The ONCHAINID, a blockchain based identity management system, allowing for the creation of a globally accessible identity for every stakeholder.
2. A set of validation certificates, or verifiable credentials, emitted by trusted third parties and signed on-chain, each of them linked to a single ONCHAINID.
3. An Eligibility Verification System (EVS) whose role is to act as a filter of all the transactions of tokenized securities and will check the validation certificates of the stakeholders. 
4. A set of Compliance rules smart contracts (i.e. offering rules) ensuring that the rules of the offering are respected, e.g.  the maximum of tokens held by a single investor, proper accreditations for purchasing,  etc.

These 4 key elements allow issuers to use a decentralized Validator to control transfers and enforce compliance on the holders of the security token by utilizing blockchain technology as a registry, proof of ownership, and transfer infrastructure.