What is CHX — and how can I use it?

A question we’re often asked by early adopters interested in our transaction model is what role our company utility token, CHX, plays in the way we operate.

Let’s take a closer look at exactly what CHX is, and how it can be used. We’re constantly evolving its role in the Own transaction model, so we’ll continue to update this blog post when new market opportunities present themselves.

What is CHX?

CHX is the utility token that powers Own’s FAST Platform and the blockchain we’ve built to underpin it. If we were a vehicle, CHX would be our fuel.

It’s incredibly useful to us, as CHX serves a number of purposes. It can be used as payment for services and transactions; it ensures the integrity of our network as a currency for rewarding and staking; and it can be used to pay investment transaction fees.

However, it’s important to note that because CHX is a utility token, holders do not have any equity or securities in our business, or any of the companies using our FAST Platform to raise capital. For these purposes, investors need a security token.

If you’re unclear as to how utility tokens and security tokens differ, here’s a quick definition:

There are many more ways in which CHX fuels services across our entire transaction model. Let’s take a look at some specific examples…

Why do we need CHX utility tokens?

Own’s technology is built on a hybrid public-private blockchain, which we’ve built specifically to power effective financial services transactions.

The purpose of incorporating a public blockchain is to make all share data immutable without a central party controlling it — including us. In order to achieve this, we need to create a permissionless and trustless network, using nodes to validate, run and operate the blockchain independently from our business.

For this model to operate successfully, we need an effective incentive and penalty mechanism to run the validator nodes, and CHX provides this.

Another reason we require CHX is to support the secondary exchange that we are currently building (we’ll talk more about this later when we’re discussing specific use cases). Transactions will be managed via an on-chain order book, which requires payment in cash or tokens to swiftly settle trades and transfer the ownership of assets between peers (known as asset settlement and cash clearing).

FIAT currencies do not allow for real-time clearing, particularly on the blockchain, so a ‘token wrapper’ can be used to settle the asset transfer and clear the payment. To encourage this, we will offer a significant discount for exchange participants choosing to pay with CHX.

When and how is our CHX utility token used?

CHX is used every time a change in asset ownership needs to be recorded on the public ledger (our DSR module), as the update needs to be verified by public validators on our blockchain. From a fundraising and investor management perspective, common actions include:

1. Security tokens being issued and ownership ascribed to an investor
2. A stock or share being migrated to our decentralised ledger (DSR) and ascribed to an investor
3. Security token ownership being transferred or personal details of the owner updated
4. A shareholder or token owner commits their response to a vote
5. An issuer distributes dividends amongst stakeholders

CHX will also be used every time a security token is traded between peers, or CHX is transferred, which will underpin the exchange we are developing.

There are other, specific use cases for CHX within our transaction process, including:

Issuance and listing: CHX plays a valuable role in supporting the fundraising process. Here are some examples of the way it can be used:

• Guaranteeing offers: when launching an offer, companies are required to ‘lock up’ a reserve of CHX for the duration of their fundraising round. The exact figure is calculated based on the FIAT value of the company’s target investment total (we require 1% of the total value as a minimum). Tokens are held in escrow until the issuance period lapses, at which point they will be released. CHX remains the company’s property and it can be reclaimed in the event of an orderly buy back of all securities.
• Validating issuance: we use CHX to increase security around our investment offers. As all companies are required to lock up utility tokens; this creates a minimum barrier for entry, providing additional protecting against fraudulent listings and denial of service attacks.
• Reassuring investors: companies can use CHX to demonstrate their commitment to investors. While all issuances need a 1% deposit, businesses can lock up a higher reserve to create a higher level guarantee. In the event of a default, the locked up CHX is distributed among investors.

Servicing: Own’s FAST Platform provides companies with a number of added-value services to enhance investor relationships once the capital raising process is complete. These services can be paid for in FIAT currency or CHX, with significant discounts for the issuer if they choose to use tokens for payment. Here are some of the most common CHX transactions for servicing:

• Payment for premium services: some of the premium services we provide require additional payment to participate, which can be made in CHX. These include:

1. Corporate actions such as rights issues, mergers and de-mergers

2. Shareholder communication and engagement opportunities

3. Events such as annual general meetings (AGMs) and ad-hoc meetings

4. Digital investor voting

• Optional CHX payments: there are some built-in services on our FAST Platform which companies can choose to pay for in CHX or FIAT currency. For example, our advanced analytics and reporting features. As the development team unlocks more servicing features, we’ll add to this list.

Exchange: one of our current key focuses at Own is developing a secondary market through which security tokens can be bought and sold. We will be outlining our vision for this exchange soon, but CHX will play a significant role in its function. For example:

• Transaction fees: every transaction, clearing and settlement action (trade by trade) is submitted to the public blockchain, and CHX is utilised as the underlying transaction fee. Multiple forms of exchange fee payment will be accepted through our decentralised order book, but exchange participants will receive a discount for using CHX from their exchange accounts. The discount will be determined by a tiered system, giving trading accounts (makers or takers) the opportunity to access better trading fees. When a higher volume of CHX is held for usage on the exchange account, lower CHX trading fees will be offered when spending this CHX from the exchange account.
• Lending and borrowing fees: we will use CHX for fees against securities lending and borrowing (pending regulatory approvals prior to the launch of our exchange)

Network and validators: our blockchain operates a Delegated Proof of Stake (DPoS) staking system (you can read more about this here), which uses CHX:

• Validators: CHX holders can support the integrity of our network by staking CHX to a validator. In return, they are rewarded with a percentage of the transaction fee for every transaction across issuance, listing, servicing and exchange trading). Each validator is required to achieve a minimum of 500,000 CHX, and up to 100 stakers providing the largest amounts of CHX will share in the validator rewards.
• Nodes: we are aiming for a maximum of 100 validator nodes, with at least 50 million CHX locked in stakes. CHX can be staked to a preferred validator node, and the staker will receive part of the rewards shared by the validator. For validator nodes, at least 10,000 CHX must be put in as collateral, with 500,000+ CHX staked to the node to become active. Stakers may cover this value by themselves, or offer a share percentage to attract external stakers.

How is CHX used for interactions between our network and third parties?

While the use cases we’ve shared work fine for direct interactions, there will be scenarios when third party enterprise customers are using our technology to underpin their investment services.

We don’t want to complicate our service by forcing enterprises to interact with our utility token. Therefore, CHX fees are paid for and managed behind the scenes. We do this through a software licensing agreement, which is different from the lock ups implemented for our own issuances and listing.

With a software licensing agreement, Own carries any volatility risks. Here’s how the model works:

• Enterprises pay a licence fee to Own for a duration of service, and based on forecasted transaction volume.
• Own converts this licence fee into CHX to “purchase” transactions for future usage
• Whenever the user interacts with our blockchain and platform functions, CHX fees are paid automatically from the CHX account allocated to that enterprise
• At the end of every year, a true-up is performed, during which new CHX will be bought by Own and allocated to the enterprise, if the allocation has been insufficient.

Licence fees apply to all commercial third party and enterprise customers interacting with our product ecosystem. In case a service is not paid for directly, but still interacts with the public blockchain (such as with ‘free’ versions of our platforms), Own will cover the required CHX fee payments for a limited period.