10XTS is demonstrating the use of XDEX as a viable platform for financial services by tokenizing the capitalization table for the company.
While many blockchain companies have rushed to raise money through Initial Coin Offerings, 10XTS has taken a different approach—to create a regulatory-compliant model for token sale and use with multiple types of tokens.
This involves both securities tokens to represent the shares of equity, and application utility tokens to power the XDEX system itself.
The company raised an initial round of traditional seed equity capital through a 506(c) private offering to accredited investors.
Now 10XTS is conducting an experimental exercise to raise an additional round of capital, but to also demonstrate the use of blockchain tokens as the actual designation of the equity share instrument in a regulatory-compliant fashion.
10XTS, Inc. is a corporation with authorized and issued shares of company stock to founders, employees, advisors, and investors.
The shares of the company are registered through the filings with the State of Delaware and corporate resolution.
The shares of the company have been authorized by action and consent of the 10XTS Board of Directors. Shares have been issued through the normal subscription agreement documents, which have been executed by all parties.
10XTS has three forms of stock:
- Common Voting,
- Common Non-voting, and
- Series A Preferred.
Additionally, 10XTS, Inc. has issued options to individuals to convert into Common Voting and Common Non-voting shares in the future.
The company specifically designates shares as “un-certificable”, which means the shares may be shown in electronic form instead of providing a paper stock certificate to shareholders. This has been used for decades by corporations who generally do not provide paper certificates.
Like most modern corporations, the cap table has been managed as an Excel spreadsheet showing each shareholder’s interests and percentage of holdings as divided into the cumulative total of shares outstanding.
XDEX is being used to replace 10XTS, Inc.’s spreadsheet-based cap table.
This has been accomplished by creating individual shareholder accounts on XDEX, as well as a 10XTS, Inc. corporate entity account.
The management team of 10XTS, Inc. has multi-signature authority over the 10XTS, Inc. account in proportion to their equity shares.
This means any proposed transaction involving 10XTS, Inc.’s blockchain-based asset accounting must be approved through the vote of each of the shareholders, with a 51% vote being required for the transaction to be approved.
10XTS, Inc. has created individual tokens on the ledger to represent each share. Each share class has a named token symbol on the XDEX Blockchain:
- XTS – Common Voting Shares
- XTS.NV – Common Non-voting Shares
- XTS.A – Series A Preferred Shares
Each shareholder receives an individual account on the XDEX platform. Each account will receive share tokens that represent their individual cap table account holdings. Each shareholder may log into their account on the system to see their tokens.
The tokens represent the class of security that exists through the real-world authorization, subscription, and issuance as evidenced through legal documents and agreements. The token is not the security, the token is a unit of account representing the security.
10XTS, Inc. shares are subject to existing U.S. securities laws. Series A Preferred were issued and sold to accredited investors through a 506 (c) private placement. They are subject to various rules like 144, which prohibit secondary market transfer for one year. Common shares are also subject to various restrictions.
As such, the tokens are also restricted, which means they cannot be transferred to another party by a shareholder except through a secondary market transaction that qualifies the sale under the law.
This means that investors cannot “trade tokens”. They must engage in a regulatory-compliant sale through already existing processes.
Only upon execution of a qualified transaction will share tokens be transferred to the new shareholder, who will also receive an account on XDEX.
In the future, we expect that transactions will be initiated by a token transfer, with the token actually changing accounts when all of the criteria is met. This is an inversion in current practices.
This exercise is an important milestone for the launch of XDEX into the market. It demonstrates a real, live use case of the platform while opening up participation to anyone who wishes to join in the journey in a regulatory-compliant fashion.
NOTE: This is just one example use case for XDEX as a blockchain platform for use by the financial services industry. XDEX supports many different use cases beyond the tokenization of corporate equity assets.
There are multiple benefits for conducting this Proof-of-Concept exercise by 10XTS:
- Prove the XDEX platform model with investors at a larger scale as a real world, live use case example
- Ease of cap table management through the XDEX Blockchain
- Transparency of all shareholder-related information and historical transaction data from the genesis of the company
- Efficient reporting and auditing of corporate shares & shareholder data
- Providing investors with real-time access to portfolio share information & valuation
- Position the company for the future when tokenized securities are more commonplace and an acceptable form of trade on registered, licensed securities exchanges as they add support for tokenized equities
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