KoreChain’s KoreProtocol: Safe & Compliant Management of Digital Securities

Introduction to KoreChain Infrastructure

The KoreChain infrastructure provides a digital securities protocol for a permissioned blockchain that enables fully compliant securities transactions in multiple jurisdictions. The KoreProtocol is a specificaton for managing securities throughout their complete lifecycle phases, the main ones being issuance (birth), trading, corporate actions, and dissolution or exit.

The KoreProtocol has been specifically designed to handle financial securities. It is not a protocol for tokens or cryptocurrencies. It does not require mining by a decentralized community of unknown miners who must be incentivized to perform mining. The selection of Hyperledger Fabric as the base on which to build the KoreChain was dictated by the requirements of securities law, corporate law, and the need for flexibility and richness of securities transactions in the private capital markets.

Diverse Securities Types and the KoreProtocol

The KoreProtocol handles many types of securities, not just equity. It includes options, warrants, units, bonds, debentures, promissory notes, loans, SAFE, commercial paper, etc. All of these are represented as digital securities implemented in accordance with the specifications of the KoreProtocol and based on the underlying KoreContract, as designed in cooperation with securities lawyers.

Authorization Basis for Securities Transactions

Every securities transaction has a source that authorizes that transaction. The authorizing basis can be securities law, corporate law, offering documents, shareholders’ agreements, directors’ resolutions, voting results, or any contract. There can be more than one authorizing basis.

Example of Dividend Authorization

For example, a dividend payment derives its authorization from two documents: the shareholders’ agreement that contains a clause that the company may pay a dividend and a directors’ resolution that a specific dividend shall be paid.

KoreContract and Ricardian Contracts

Here is an example of a clause in a shareholders agreement stating the company’s dividend policy:

3.2.2. The Shareholders are entitled to the distribution of the profits of the Company for each Shareholder in proportion to the number of Shares that the Shareholder holds.

An accompanying directors resolution that declares dividends might be (ignoring preambles and other clauses):

NOW, THEREFORE, BE IT RESOLVED, that this corporation declares a dividend of $[Amount] per share of Common Stock to holders of record as of [Date], payable on [Date], subject to compliance with applicable provisions of law in [Jurisdiction(s)].

The KoreChain converts each authorizing document into a Ricardian contract, the KoreContract, which codifies deep references to clauses, variables, and data. The KoreContract is then digitally signed to make it tamper-evident. The term ‘contract’ is used here in the sense of legal contracts and not as ‘smart contracts’ (which, ironically, are neither smart nor true contracts). This implies that KoreContracts must be able to prove that they adhere to the legal doctrinal principles of contracts.

Transaction Integrity and Referential Integrity on KoreChain

The KoreProtocol, therefore, provides the functions to support a sound legal basis for KoreContracts to the extent that is possible in an electronic contract. Obviously, the structure and terms of a KoreContract are provided by the originating parties and their legal counsel; the ability of the KoreProtocol to prove the legal soundness of KoreContracts is dependent on the actual legal clauses and data within the contracts as well as the accuracy and integrity of subsequent transactions.

All securities transactions include references to the associated authorizing documents, parties involved in the transaction, and regulatory filings where required. The diagram to the right shows how immutable referential integrity is achieved on the KoreChain.

Continuing the above example, a dividend payment is not one simple transaction. It contains a number of sub-transactions such as board of directors’ approval of the dividend payout, notification of dividend payment to the company’s transfer agent, disbursement of funds from the company account to transfer agent’s account (with references to the wire or other means of money transfer), and for each shareholder, validation that they are a shareholder of record as of the record date as stipulated in the directors resolution, computation of dividend, confirmation of money transfer to shareholder’s account, and record of acknowledgment if any.

Finally, the company is notified of the completion of dividend payments. Since the KoreConX platform is fully integrated, the company’s dashboard as well as the individual dashboards of each shareholder are updated in real time.


Each of these sub-transactions as well as the full transaction (which may be thought of as a ‘use case’) contain immutable references to immutable and authorizing documents. The KoreProtocol provides for numerous use cases and the complex transactions that implement those use cases. 

Use Cases for Financial Instruments

Below, we identify the major use cases for some of these financial instruments.

For equity securities, the main use cases include (details here):

  1. Issuance
  2. Trading (incl. trading restrictions)
  3. Transfers
  4. Exercise of rights
  5. Financial participation
  6. Corporate actions (such as AGM, M&A, exits, etc.)
  7. External actions (such as regulatory actions)

Other securities also have their own collection of use cases.

Options and warrants

Options and warrants are equity derivative instruments. Use cases of options include granting, vesting, acceleration, exercise, and conversion. Warrants are similar to options, except that they are usually issued in a financing transaction to brokers or investors while options are generally issued to staff, advisors or consultants. While their use cases are slightly different, warrants and options transactions will be quite similar.

Debt securities

Debt securities are more varied and include bonds, debentures, promissory notes, loans, SAFE, and commercial paper. Each of these have similar use cases, such as issuance or grant, potential trading on a secondary market, and finally exercise through payout or conversion to equity at a pre-defined ratio or premium to the price of equity at the time of the grant.

Bonds and debentures are both debt instruments used by companies that wish to raise money without the dilution of issuing stock in the company. Most commonly and in the US, bonds generally refer to debt secured against specific assets while debentures are generally unsecured debt (and therefore carry higher interest). From the perspective of securities transactions, bonds and debentures are issued (or granted) and exercised upon maturity. The treatment of interest payments (installments or lump sum) or redemption of face value of the instrument (as in the case of a zero coupon bond) varies based on the terms of issuance. Further, issuers may issue bonds and debentures that are convertible to equity. These instruments may potentially trade on secondary markets.

Included in the arsenal of debt securities are promissory notes, loans, and commercial paper. All these differ from each other and from bonds and debentures in the level of formality, well-known and defined terms and conditions, and the nature of risk. Commercial Paper is a short-term debt security, with a maturity period that does not exceed 270 days. Commercial paper can be rolled over upon maturity. These debt securities can also have convertible components, making them convertible into equity using defined conversion rates and under various terms and conditions.

SAFE stands for Simple Agreement for Future Equity, designed to replace convertible notes while being compliant with securities regulation. It is similar to a warrant, except that it does not specify a price for the shares. It is also not a traditional debt security, since no interest payments are provided. Conversion to equity happens based on pre-defined events such as future investment rounds. 

The KoreProtocol for Capital Raising and Securities Management

Raising capital is a complicated process. It requires a sound understanding of the various avenues open to issuers in both equity and debt. Raising capital is also not a one-time event. Any serious startup should plan for multiple rounds, where each round could focus on one type of capital or even a combination of them.

Each of these types of securities impacts the captable in different ways during issuance, transfer, trading, payments, exercise, conversion, and redemption.

The KoreConX all-in-one platform deals with the changes to the captable, while the KoreChain creates immutable records of these transactions. The value of the KoreChain lies in the independent validation of these transactions and their results by nodes that are parties to these transactions, have subject matter expertise, or have fiduciary responsibilities to the parties to these transactions.

The results are available on the DLT for future reference, verification, auditing, and reporting.

Conclusion: Comprehensive Management of Securities Lifecycle

The KoreProtocol is designed to handle the complex use cases of capital raise and the numerous sub-transactions that implement these use cases, while remaining compliant with securities regulation in multiple jurisdictions. It is important to note that the KoreProtocol is not restricted to just the issuance or even just the trading of these securities.

In fact, the KoreProtocol handles the complete lifecycle of the various types of securities. It provides for the effects of corporate actions, regulatory actions, and other external events (such as, for example, temporary halt on trading by a secondary market operator due to extraordinary circumstances).

At a deeply granular level, the KoreProtocol ensures immutable referential integrity to satisfy transparency and audibility.


What are digital assets?

In the ever-evolving landscape of finance and technology, digital assets have emerged as a transformative force, reshaping how we perceive and manage ownership and value. Digital assets represent a broad category of assets that are digitized and stored on blockchain technology, providing unprecedented security, transparency, and accessibility.

Keep reading and learn more.


What Are Digital Assets?

Digital assets, in essence, are assets that exist in a digital form, represented and secured by cryptographic technology, often on a blockchain. These assets can represent various forms of value, including ownership, rights, or entitlements to physical or digital assets. Digital assets are versatile and can encompass a wide range of items, from financial instruments to intellectual property and more.

5 examples that you need to know

The table below categorizes and describes various types, such as Cryptocurrencies, Security Tokens, NFTs, and others, providing a clear and concise overview of this dynamic field.

Asset Description
Cryptocurrencies Cryptocurrencies like Bitcoin and Ethereum are perhaps the most well-known digital assets. They represent units of value and are used as a medium of exchange on their respective blockchains.
Security Tokens These represent ownership in traditional financial instruments, such as stocks, bonds, or real estate, and are often subject to regulatory oversight.
Non-Fungible Tokens (NFTs) NFTs are unique digital assets that represent ownership of one-of-a-kind items, such as digital art, collectibles, or even virtual real estate.
Utility Tokens Utility Tokens grant holders access to specific functions or services within a blockchain ecosystem, like accessing a platform’s features or participating in a network’s governance.
Digital Securities These are tokenized versions of traditional securities, such as stocks or bonds, that offer enhanced liquidity and automation of regulatory compliance.


Digital Assets and Blockchain: How Do They Work?

Blockchain technology is at the heart of this kind of asset. A blockchain is a decentralized, immutable ledger that records transactions across a network of computers. Digital assets are created and managed through smart contracts, which are self-executing agreements with predefined rules and conditions.

When a digital asset is created, it is assigned a unique identifier on the blockchain. Transactions involving the asset are recorded in blocks, which are added to the chain in chronological order. This ledger is distributed across the network, making it highly secure and resistant to tampering. All participants can verify transactions, ensuring transparency and trust in the system.

The Difference Between Crypto and Digital Assets

While the terms “crypto” and “digital assets” are sometimes used interchangeably, there is a distinction between them:

  • Cryptocurrency: Cryptocurrencies, like Bitcoin or Litecoin, are a subset of digital assets. They are primarily used as a medium of exchange or store of value, aiming to replace or complement traditional currencies. Cryptocurrencies focus on monetary use cases.
  • Digital Assets: Digital assets encompass a broader range of tokens that represent ownership, rights, or value. They include security tokens, NFTs, utility tokens, and digital securities, among others. It serves various purposes beyond being a medium of exchange.

Types of Digital Assets in the Blockchain Ecosystem

The blockchain ecosystem is teeming with diverse digital assets, each with its unique characteristics and use cases. Here are some key types:

Cryptocurrencies: As mentioned earlier, cryptocurrencies are digital assets designed for use as a digital currency. They facilitate peer-to-peer transactions, providing a decentralized and borderless means of transferring value.

Security Tokens: represent ownership in real-world assets such as stocks, bonds, or real estate. Security tokens are subject to regulatory compliance and are aimed at digitizing traditional financial instruments.

Utility Tokens: Utility tokens grant access to specific functions or services within a blockchain ecosystem. They are often used to pay for platform services, access features, or participate in governance.

Non-Fungible Tokens (NFTs): NFTs are unique and indivisible, representing ownership of a specific item or piece of content. They have gained popularity in the art, entertainment, and gaming industries.

Digital Securities: Digital securities are tokenized versions of traditional securities like stocks and bonds. They offer increased liquidity, automation of regulatory compliance, and the potential to streamline capital markets.

Impact on Private Capital Markets

Now that we have a better understanding of the area, we can delve deeper into their landscape. It is revolutionizing the private capital markets in significant ways.

Let’s check more details:

Enhanced Transparency: Blockchain technology ensures transparent and immutable records of ownership and transactions. This transparency builds trust among investors and stakeholders.

Liquidity and Accessibility: The tokenization of private assets through digital securities enables fractional ownership, reducing investment barriers and increasing liquidity.

Automated Compliance: Smart contracts embedded in digital securities can automate compliance with SEC regulations, reducing administrative burden and ensuring adherence to legal requirements.

Reduced Intermediaries: By eliminating intermediaries and streamlining processes, they lower transaction costs and reduce friction in private capital markets.

Global Reach: These kinds of assets are accessible to a global audience, expanding opportunities for fundraising and investment beyond traditional geographic boundaries.

Fractional Ownership: Investors can purchase fractions of high-value assets, enabling diversified portfolios and increased participation.

Final insights

Digital assets, powered by blockchain technology, are poised to disrupt and revitalize private capital markets. They offer transparency, accessibility, and compliance, making it easier for companies to engage in fundraising and investors to access previously illiquid assets.

Also, they represent a transformative force that will reshape how we perceive, trade, and invest in assets.

Although, to fully reap these benefits, is important to partner with trustworthy platforms. Ensuring that operations adhere to regulations, along with transparent policies on data management, usage, and privacy, is key to protecting your business and investments.

As the financial landscape continues to evolve, understanding the potential of digital assets is paramount for businesses and investors alike.

It’s definitely a new era in private capital markets, but trust remains a highly valuable asset.

What are securities in blockchain?

What are securities in Blockchain?

Securities, in the traditional sense, represent various financial instruments such as stocks, bonds, and derivatives that signify ownership, equity, or rights in an underlying asset or entity. In the context of blockchain, securities are digital tokens or smart contracts that represent ownership, equity, or other financial interests in a real-world asset or company. These tokens are securely recorded on a blockchain, providing immutable records of ownership and enabling efficient and transparent trading.

Transparency: A Game-Changer

One of the primary benefits of using blockchain technology for securities lies in its transparency. Unlike traditional financial systems, where transactions are often opaque and intermediaries are numerous, blockchain offers a transparent ledger where every transaction is recorded and visible to authorized parties.

This transparency fosters trust among stakeholders, reduces the risk of fraud, and enhances the overall integrity of the private capital markets.

Democratizing Finance with Blockchain

In the world of finance, private capital markets play a pivotal role in shaping investment opportunities, fostering economic growth, and providing innovative financing solutions. However, the complex nature of private capital markets has often led to inefficiencies, lack of transparency, and limited access for investors.

Enter blockchain technology, which has the potential to revolutionize these markets by offering transparency, trust, and enhanced efficiency. In this blog, we will explore the concept of securities in the blockchain, the differences between private and public chains, and why private blockchains are particularly well-suited for the private capital markets, catering specifically to CEOs, CFOs, and board directors without delving into technical jargon.

Differences Between Private and Public Chains

When we talk about securities in blockhain is interesting to deep the knowledge about the technology, keep reading and learn about these important topics.

Blockchain networks can be categorized into two main types: public and private chains. Each has its own set of characteristics and use cases.

➨ Public Blockchains: Public blockchains, like Bitcoin and Ethereum, are open and permissionless networks. They are maintained by a decentralized community of participants, and anyone can join, validate transactions, and access the ledger. While they offer a high degree of security and decentralization, public blockchains may not be suitable for private capital markets due to their lack of privacy and scalability. Transactions on public chains are visible to anyone, making them unsuitable for sensitive financial information.

➨ Private Blockchains: On the other hand, private blockchains are closed and permissioned networks. They are typically used by organizations, consortia, or groups of trusted parties who have control over access and participation. Private blockchains offer higher privacy, scalability, and customization options, making them ideal for private capital markets. Transactions and data are kept confidential among participants, ensuring the security of sensitive financial information.

Why private blockchains are better for private capital markets

Now we know what are securities in blockchain, let’s take a closer look at other aspects.

Private capital markets are characterized by complex transactions, stringent regulatory requirements, and the need for confidentiality.  Here’s why private blockchains are particularly well-suited for these markets:

Enhanced Privacy: Private blockchains offer a controlled environment where sensitive financial data can be securely shared among authorized parties while remaining hidden from the public. This level of privacy is crucial for protecting the interests of both issuers and investors.

Customized Governance: Private blockchains allow organizations to tailor the governance structure according to their specific needs and regulatory requirements. This flexibility enables efficient compliance management and regulatory reporting.

Scalability: As private capital markets involve a relatively lower number of participants compared to public markets, private blockchains can offer greater scalability without compromising performance.

Reduced Costs: By streamlining processes and reducing the need for intermediaries, private blockchains can lower transaction costs, making private capital markets more accessible to a wider range of investors.

Faster Settlements: Blockchain technology enables real-time settlement and automated execution of smart contracts, reducing settlement times and the risk of errors.

Securities in blockchain: highlights about trust

The adoption of private blockchains in private capital markets brings a level of trust and transparency that has been sorely lacking in traditional systems. Here’s how private blockchains instill trust among investors and stakeholders:

Benefit Description
Immutable Records Transactions recorded on a private blockchain are tamper-proof, ensuring that once a transaction is confirmed, it cannot be altered. This immutability provides confidence in the accuracy of ownership records.
Transparency for Authorized Parties While private blockchains maintain confidentiality, they provide transparency to authorized participants, allowing them to verify ownership, track transactions, and ensure compliance with regulations.
Reduced Counterparty Risk Blockchain technology eliminates counterparty risk by enabling automated smart contracts that execute predefined terms when conditions are met. This reduces the risk of disputes and defaults.
Improved Due Diligence Investors can conduct more efficient due diligence processes by accessing real-time, transparent information on assets and transactions, reducing uncertainty and enhancing trust.

Trustworthiness in blockchain solutions

As we know, blockchain technology has the potential to revolutionize many industries, offering benefits such as security, transparency, and efficiency. However, it is important to choose a company that offers reliable and secure solutions.

Trust is a valuable asset in any relationship, especially when operations involve your business, investors, and private capital markets. When choosing a blockchain company, it is important to consider factors like:

  • Clarity and transparency: The company should be clear and transparent in its actions, from the first contact to the signing of the contract. It should provide complete information about its services, pricing, and terms of use.
  • Reputation: It is important to check the company’s reputation before doing business with it. Do some online research, read customer reviews, and consult with experts.
  • Compliance: The company should be in compliance with applicable laws and regulations. This is important to ensure the security and reliability of its solutions.

3 tips that can save your life when working with securities in blockchain

As you see in the past section, verifying the trustworthiness of a blockchain company is an essential topic for those who work with securities in blockchain and private capital markets. Now let’s check 3 practical tips that can help a lot when you’re looking for a blockchain company.

1. Read the contract carefully: The contract should be clear and concise, and should specify the rights and obligations of both parties.

2. Request references: Ask for references from the company’s previous customers.

3. Ask questions: Do not hesitate to ask the company questions about its services and processes.

Examples of questions you can ask:

📣 How does the company ensure the security of its solutions?

📣 How does the company handle security incidents?

📣 How does the company comply with applicable laws and regulations?


By asking these questions, you can gain a better understanding of the company’s resources and processes, and make a more informed decision about whether it is the right one for you.


Future of blockchain and its impact on investments

The adoption of blockchain technology in private capital markets has the potential to revolutionize the way securities are managed, traded, and accessed. Private blockchains, with their emphasis on privacy, scalability, and customized governance, provide a robust solution for enhancing transparency and trust in these markets.

As CEOs, CFOs, and board directors, embracing this technology can empower your organizations to operate more efficiently, comply with regulations, and attract a wider pool of investors, all while instilling trust in the private capital markets of the future.

By understanding the power of securities in blockchain and the advantages of private chains, you can position your organization for success in this evolving landscape.

The Demise of the Public Chains for Securities

The Australian Stock Exchange (ASX) made a big splash recently announcing the cancellation of their blockchain project after spending—and writing off—$165 million. While this sounds disastrous for blockchain technology, it is actually a cautionary tale since the blockchain project of ASX is based on Ethereum.

We have been saying this for over three years: public blockchains for securities and derivatives is a bad idea. In fact, Vitalik Buterin, one of the principal developers of Ethereum, himself noted back on May 19, 2016 that “…the weaker argument, that for high-value assets the economic security margin of public blockchains is too low, is entirely correct and depending on the use case is a completely valid reason for financial institutions to explore private and consortium chains.”  He was alluding to various versions of the settlement finality problem that he describes in that blog. From the subsequent failures of the ICO and the STO initiatives, it appears that very few of those developers read Vitalik’s article or understood it.

In ASX’s case, it appears that their blockchain is based on VMWare’s DLT, which is itself built on Ethereum and apparently addresses the limitations of Ethereum. The VMWare blockchain team had to go through (and probably continue to go through) considerable engineering to extend Ethereum’s functionality to make it useful for enterprise chains. Enhancements include a privacy SDK, governance, and scalability. The amount of work necessary to make Ethereum play nicely with securities is a bit like trying to convert a Ferrari into a cruise ship. It can be done, but why not start with a decent boat instead?

There are two main reasons why public blockchains are not best suited for financial securities. The first reason stems from a massive confusion about the nature of non-payment financial instruments, such as securities, derivatives, and asset-backed digital securities (such as NFTs). These financial instruments (the securities) are not bearer instruments. Transactions involving them are subject to corporate law and securities law. While some of these laws may seem onerous, they are there for good reasons that evolved with several hundred years of experience. Mainly, these laws ensure that transactions are subject to the judicial doctrine of contract law. Entities (companies or individuals) who act as intermediaries in these transactions provide valuable services, chiefly that of assuming counterparty risk. For this reason, the participants in transactions involving non-bearer instruments are either the principals or intermediaries who have fiduciary responsibilities. To put it simply, an ostrich farmer in Kenya has no business validating a securities transaction between a seller in Kansas City, KS, and a buyer in Los Angeles, CA.

This is, or should be, a powerful deterrent for using unverified participants (as in a public blockchain) to validate securities-based transactions.

The second reason why public blockchains are unsuited for such financial transactions is due to technical limitations of public blockchains. Scalability, recourse, recovery, privacy, and safety become paramount. Can a public blockchain provide all that? Yes, but at what cost, when there are permissioned blockchains available for such a use case?

To put it another way, the first reason says,”Don’t let a drunk drive a Ferrari.” The second reason says, “Don’t try to modify a Ferrari into a cruise ship when there is a cruise ship readily available to use.”

At KoreChain, we come from a multi-decade background in the financial industry, as executives, entrepreneurs, and traders ourselves. We are painfully aware of the issues in the existing legacy technologies. We also realize that regulation can be onerous even when well-intentioned. Our concern was not to waste time re-engineering Ethereum or any other public chain for that matter, but instead to focus on solving the business problem. Addressing the friction in the private capital markets was more important than going on a technology goose chase and attempting to shoe-horn a public blockchain for a very different purpose.

For this reason, we built the KoreChain on a solid base of an enterprise-ready, industrial-strength permissioned blockchain. We focused on the business architecture and design of the blockchain application.

None of this is a polemic against Ethereum itself, which is an ambitious technology that brought awareness to the power of smart contracts. It’s just not the right tool for this particular job.