Liquid Securities Overview¶
Liquid Securities provides a platform for businesses to issue and manage security tokens on the Liquid Network.
Liquid Securities is currently available as an API. The API allows Liquid Securities to be integrated into an existing token platform, providing an easy way to expose end users to the asset capabilities of the Liquid Network. Details of how to obtain an API access token and then use the API can be found in the Liquid Securities API Tutorial.
A brief overview of Liquid Securities can also be found on the Blockstream website.
Features and Benefits¶
Manage Liquid’s Issued Assets as security tokens.
Assign and distribute security tokens over the Liquid Network to registered investors.
Apply category-based transfer restrictions using a Liquid Securities Account ID in Blockstream Green.
Restrict which investors are allowed to receive a security token.
Enable granular control of transaction restrictions by plugging into your own authorization API.
Report on investor balances, ownership and security token activities.
Track reissuance and burn of security token circulating supply.
Simplify registering your security token with the Liquid Asset Registry for integration into Blockstream Green, Blockstream Explorer, and other supporting services.
Blacklist investor UTXOs to cover key-loss scenarios.
Manage the assignment and distribution of security tokens as vesting shares.
Record external dividend payments in one place.
Before going into detail about Liquid Securities, it is useful to review some commonly-used terminology and the features enabled by the Liquid Network.
Liquid is a Bitcoin sidechain built using the open-source Elements software. Liquid uses a federated consensus model which allows for rapid settlement of both Bitcoin and Issued Assets. Liquid also utilizes Confidential Transactions, which allows the asset amount and type to be hidden from any actors not directly involved in the transaction. Liquid also provides the ability to reveal any of this information to select third parties, such as auditors and regulators.
When managed through Liquid Securities, those assets can represent the tokenized, digital form of traditional securities.
The act of creating a new asset on the Liquid Network is referred to as Asset Issuance. All Liquid assets are transferrable between Liquid users and make use of Liquid network features like Confidential Transactions. Security Tokens will be referred to as assets within this website, as the term ‘token’ also refers to a special type of asset within the Liquid network that allows for an asset to be reissued.
Security tokens on the Liquid Network are created as Issued Assets. In order to apply the rules needed to conform to regulatory requirements, Liquid Securities controls the issuance and transfer of these assets.
Liquid Securities allows issuers to create an asset directly into an issuer’s wallet. Liquid Securities never holds any assets or reissuance tokens on the issuer’s behalf.
Issuers can also add their asset to the Liquid Asset Registry, making it available to services that use the registry data, such as Blockstream Green. Issuers who want this option enabled must provide a ticker, the domain name used to validate ownership, and a public key during asset issuance.
An asset can be created as reissuable during asset issuance. Reissuance is the act of creating more of an existing asset. The reissuance of additional amounts of existing assets is controlled by a special kind of asset, the reissuance token, which is created alongside the actual asset during issuance. Reissuance tokens can only be created during initial asset issuance.
Reissuance tokens act as a verifiably held right to increase the circulating amount of the associated asset. As with any other asset, they are exchangeable among participants on the network.
Care must be taken to ensure that only those authorized to reissue an asset are in possession of the reissuance token.
Liquid Securities introduces some concepts that don’t apply to all assets on the Liquid network, only to those managed within Liquid Securities. These are explained within this page.
Liquid Securities relies on a co-signer to transfer tokens, and so it stores the necessary information to record relevant transfer details, such as amounts and destinations. This enables issuers to produce reports, such as ‘proof of transfer’ and ‘proof of balance’, to auditors or regulators. Liquid Securities also provides API endpoints that allow issuers to view transfer history, asset activities, and ownership, at any given Liquid block height.
All distributions, reissuances, burns, and transfers of Liquid Securities managed assets that are held by the issuer’s Liquid node must be done using the Liquid Securities API. This ensures that asset UTXOs remain tracked through Liquid Securities.
Transfer Override Functions¶
Liquid Securities primarily applies transfer restrictions through the use of ‘whitelist’ categories. This process involves creating a category, assigning it to an asset, and then assigning investors to the same category, which makes them eligible to receive the asset. Using a category, or set of categories, to manage investor eligibility will handle most common processes but occasionally, issuers will have transfer restrictions that require additional logic or need certain transfers to be overruled. In these cases, Liquid Securities lets an issuer define an API endpoint for each asset that will handle the authorization of transfer requests. When an ‘issuer authorization endpoint’ has been specified against an asset, Liquid Securities passes Blockstream Green transfer requests to the issuer for approval. The result from that is then returned to the Blockstream Green server, bypassing any rules that might be defined within Liquid Securities. This enables custom transfer rules to be developed by the issuer, allowing for the integration of business logic that does not fit the default category-based authorization model of Liquid Securities. For more details, see the Issuer Authorization Override section.
Issuers are also able to manage a UTXO ‘blacklist’ which prevents spends from a list of issuer-defined outputs. This is useful in scenarios where an investor has lost access to their original wallet and requires a reissuance of tokens for example.
Restricted Asset Transfers¶
In order for investors to receive and transact a Liquid Securities managed asset, an investor must have enabled a Liquid Securities Account in Blockstream Green. This type of wallet ensures that the issuer can report on asset ownership and apply restrictions of transfer to the asset using either of the following methods:
Transfers are restricted based upon Liquid Securities Investor records. This can either be done through the use of categories or by an issuer providing their own validation logic, accessed via an ‘issuer authorization endpoint’. For this reason, we refer to them as ‘Investor-Restricted’. The receiving destination must be a valid Liquid Securities Account or one of the issuer’s own Liquid treasury addresses. Read more about Investor-Restricted Assets.
Issuers may want to issue an asset that only uses Liquid Securities to track ownership and transfers, leaving the handling of investor eligibility to rules managed outside of Liquid Securities. In this set up, transfers are only restricted by requiring that the receiving destination must be a valid Liquid Securities Account or one of the issuer’s own Liquid treasury addresses. Investor and category records within Liquid Securities are not used for investor management, assignment and distribution. Although there may be external restrictions placed on the investors through the use of an ‘issuer authorization endpoint’, the lack of a Liquid Securities Investor record means we refer to them as ‘Tracked’ assets, as transfers are only tracked and not restricted in any other way by Liquid Securities. Read more about Tracked Assets.