The Sentinel System™
autonomous enforcement of legal rights for the most robust systemic protections of any asset class
A New and Better Way to Manage Investor Commitments
Investor rights management is ready to enter the information age. While the current model has proven robust enough to persist since the first financial markets of the 17th century, it contains significant inefficiencies that simultaneously suppress the enforcement of investor rights while exposing securities issuers to litigation risk. This destroys investor value, imposes extra, hard-to-predict costs on issuers and distorts market efficiency. Read more about these issues here.
Hunit’s patent-pending technology and process attacks the heart of this inefficiency by moving investor relationship management into a technical environment that verifies commitments are being met and autonomously remedies them when they aren’t.
Creating an investment instrument with the Sentinel System™
An issuer plans its offering using a structure best suited to the needs of the business and the interests of its investors
The smart contract technology at the heart of the Sentinel System™ allows issuers to create high-quality investment instruments that transcend conventional financial silos – self-enforcing securities can combine features that are equity-like, debt-like, include encumbered assets or royalty payments. In this step, issuers also determine the desired regulatory treatment for their offering so as to enable the Sentinel System™ to automatically enforce any applicable restrictions.
The issuer determines its commitments to investors and the terms of its investment agreement
Portions of an investment agreement can be automated and subject to self-remedying enforcement using the Sentinel System™. Interest or dividend payments, asset encumbrances, reporting, governance – an issuer can make almost any type of commitment to its investors that relates its particular business model or the value of the investment. These are added to the remaining terms of the investor agreement which can be enforced and adjudicated conventionally.
The issuer pre-plans remedial actions to be taken in the event that an investor commitment is not fulfilled, and creates binding pre-authorizations to execute if called upon
For the first time, both investors and issuers have clarity about the timelines and sequence of events that are triggered in cases of under performance. The remedies can involve both ‘on-chain’ events, like issuing additional securities, and ‘off-chain’ ones involving real-world assets. The strength of the binding remedial actions offered by an issuer will be an important part of an investor’s assessment of an investment opportunity.
The full program is encapsulated in an indelible Sentinel System™ public-blockchain token program and smart contract
Smart-contracts authored and created on the Sentinel System™ include all the elements needed to execute any of the commitments or actions they describe. Once set in motion, the security autonomously monitors and enforces the promises made by its issuer to investors until the end of the securities program’s lifecycle.
The investment instrument automates its issuance and (if permitted), secondary trading
With Hunit’s smart contract technology, planning and documenting is the same as doing. When the terms of closing are described in the smart contract, this description serves as an execution instruction – escrowing capital, settling upon close (DVP), regulatory reporting and distributing proceeds can all be automated with virtually no backoffice demands. In secondary trading (if permitted), the Sentinel System™ enforces regulatory compliance in all trades, can clear & settle trades involving bank payments and enforce acceptance of an instrument’s investment agreement as a pre-requisite to any transaction.
A Revolution in the Making
What are the implications of creating private market investments that enforce their own compliance, monitor issuer commitments and resolve problems autonomously?
It has the potential to dramatically alter the topography of today’s financial industry.
- Decentralized exchanges (such as that native to the Stellar blockchain protocol) provide peer-discovery (i.e. bringing buyers and sellers together)
- The blockchain itself provides transaction clearing
- Instruments based on the Sentinel System™ provide ongoing regulatory compliance and the best structural protection of investor rights of any class of financial product, autonomously
These three elements together challenge the concept of a centralized exchange while opening up the immense private capital market to new forms of investment and transparency.