Blockchain Tokenization Innovation Insights from Patents

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©2020 TechIPm, LLC All Rights Reserved http://www.techipm.com/

Blockchain Tokenization Innovation Insights from Patents
Alex G. Lee1
Patents are a good information resource for obtaining the state of the art of blockchain tokenization technology
innovation insights.
I. Blockchain Toknization Technology Innovation Status
Patents that specifically describe the major blockchain tokenization technologies are a good indicator of the
blockchain tokenization innovations in a specific innovation entity. To find blockchain tokenization technology
innovation status, patent applications in the USPTO as of June 30, 2020 that specifically describe the major
blockchain tokenization technologies are searched and reviewed. 70 published patent applications that are related
to the key blockchain tokenization technology innovation are selected for detail analysis.
Following figure shows blockchain tokenization patent application landscape with respect to the innovation entity.
As shown in the figure, the key blockchain tokenization innovation entities are Alibaba Group, nChain Holdings
Limited, Anchor Labs, Inc., Shannon Code, Coinbase, Inc., Securrency, Factom, Inc., Vijay Madisetti, Paypal,
Goldman, Sachs & Co., JPMorgan Chase Bank, International Monetary Exchange, Mastercard, Visa , Walmart ,
and tZERO Group, Inc..

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Alex G. Lee, Ph.D Esq., is a CTO and patent attorney at TechIPm, LLC.

©

©2020 TechIPm, LLC All Rights Re
tZERO Gro
1%
Others
41%
Blockchai
eserved http://ww
Mastercard
1%
V
Walmart
1%
oup, Inc.
%
in Tokenizat
ww.techipm.com
JPMorga
International
Monetary Exchan
1%
Visa
1%
tion Patent
/
Payp
1%
Goldman, Sach
1%
n Chase Bank
1%
nge
Application
Aliba
Vijay Mad
3%
pal
%
hs & Co.
n Landscape
ba Group
23%
Secur
3%
Factom, Inc.
3%
disetti
e USPTO 20
nCha
A
La
Shanno
4
Coinbase, Inc.
3%
rency
%
020 2Q
2
ain Holdings
Limited
4%
Anchor
bs, Inc.
4%
on Code
4%

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Following figure shows blockchain tokenization patent application landscape with respect to the key technology
innovation field. As shown in the figure, Token Transfer/Exchange is the most innovated blockchain tokenization
technology followed by Cryptocurrency Trading/Exchange Marketplace, Stable Coin, Cryptocurrency Payment,
Token Management, Asset Tokenization, Security Token, Cryptocurrency Custody, Cryptocurrency Fund
(ETFs/REIT), Cryptocurrency AML, Cryptocurrency Swap, and Tokenized Asset Valuation.
Token
Transfer/Exchange
20%
Cryptocurrency
Trading/Exchange
Marketplace
16%
Stable Coin
14%
Cryptocurrency
Payment
13%
Token Management
12%
Asset Tokenization
7%
Security Token
7%
Cryptocurrency Custody
4%
Cryptocurrency Fund
(ETFs/REIT)
3%
Cryptocurrency AML
2%
Cryptocurrency Swap
1%
Tokenized Asset Valuation
1%

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II. Blockchain Toknization Technology Innovation Details
Patent information can provide many valuable insights that can be exploited for developing and implementing new
technologies. Patents can also be exploited to identify new product/service development opportunities.
Decentralized Cryptocurrency Swap Platform/US20190385156
The decentralized cryptocurrency swap platform utilizes smart contracts and protocol implementations to support
the peer-to-peer trading of cryptocurrency based on different blockchains and different standards. The platform is
designed for both same-chain and cross-chain cryptocurrency trading.
Following figure illustrates a decentralized cryptocurrency swap process for same-chain cryptocurrency
trading.

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Let’s assume that user A possesses 1 ERC721 token and would like to exchange it for 0.5 ETH. First, User A
creates a request order and publishes it to the transparent OrderBook. The OrderBook contains all the
cryptocurrency swap request order information will be available to the public through open, transparent storage.
The OrderBook can use a cloud-based storage, or be placed on a public blockchain.
User B queries open orders from the OrderBook and sees User A's request order. User B takes User A's
order and calls the Approve function from the Ethereum Swap Smart Contract using the Swap Smart Contract's
contract address and cryptocurrency approval value (This function gives the Swap Smart Contract access to the
cryptocurrency to be traded). This will approve 0.5 ETH of User B's wallet to the Swap Smart Contract with
signature from User A's request order. Once this function is successfully called, User A will be informed through
direct messaging.
User A can manually approve the ERC721 token to the Ethereum Swap Smart Contract or set up auto
approval when call the Approve function (automatically match orders). Once the Approve function is completed,
User A will notify the Settle Controller.
The Settle Controller then will transfer the exchanged cryptocurrency through the Settle function of the
Swap Smart Contract using User A and User B's wallet addresses, crypto token amounts, crypto token contract
addresses, expiration time, nonce number, and signatures. It will decode approval data based on request order data.
The Settle Controller uses the expiration time, nonce number and the signatures to validate the swap. User A's
collectible will be sent to User B and User B's 0.5 ETH will be transferred to User A through the smart contract.
If the swap is validated, the crypto tokens being exchanged will be transferred to the other party.

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For cross-chain cryptocurrency trading, all processes are the same with same-chain cryptocurrency trading
except for the Settle Controller section. The Settle Controller requires one extra step to protect the fairness of the
cross-chain cryptocurrency swap process as shown in the following figure.

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Smart Contract based Stable Coin/US20200082360
A high level of price volatility is the key problem of cryptocurrencies and the technology behind them. Volatility
for a cryptocurrency is typically created by a user willing to exchange an amount of that currency above or below
the market value. Because a source of volatility in the future may not be known, traditional stability mechanisms
such as use a currency peg or collateral or any predicting method cannot ensure a truly “stable” coin. Additionally,
these stability mechanisms do not address a run on bank scenario in which multiple redemptions can cause the
price to crash or a rapidly rise.
The stability protocol based on a smart contract algorithm that is designed to completely eliminate the
possibility for any volatility in the first place can be achieved by preventing the user from selling the
cryptocurrency above or below the current (fixed) face value. The stability protocol is designed to process a two-
way transaction. On one side the sender can send the cryptocurrency to a receiver, but on the other side the receiver
must send back in return cryptocurrency or, an invoice, or receipt with same value as the cryptocurrency. In the
event that the value of the exchange does not match, the smart contract balances the face value between the sender
and the receiver by returning the extra value to whom it belongs. The two-way nature of the smart contract means
that the cryptocurrency cannot be traded speculatively, since the value of the cryptocurrency is enforced. By using
the smart contract to prevent the exchange of the cryptocurrency above or below its face value, the stability
protocol is able to remove the volatility created by these exchanges, thereby stabilizing the value of the
cryptocurrency.

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Smart Contract based Compliance Self-Enforcing Security Token/US20200051067
Any token that represents underlying tradeable assets is considered to be “securities” under the regulatory
framework of various countries (security token). Under U.S. federal securities laws, a company that offers or sells
its security tokens must register the securities with the Securities and Exchange Commission (SEC) or find an
exemption from the registration requirements. For some exemptions, such as Rule 506 of Regulation D, a company
can sell security tokens to an individual referred to as an accredited investor, which is defined in Rule 501 of
Regulation D. There are also other exceptions under other parts of Regulation D, Regulation S, Regulation A, etc.
As used herein, Regulation A refers to any of Rules 251-263 of Regulation A (as found in 17 C.F.R. § 230.251-
230.263); Regulation D refers to any of Rules 501-506 of Regulation D (as found in 17 C.F.R. § 230.501-230.506);
and Regulation S refers to any of Rules 901-905 of Regulation S (as found in 17 C.F.R. § 230.901-230.905).
The US SEC promulgates and enforces regulatory restrictions on how security tokens can be sold, who they
can be sold to, records that must be kept, and disclosures that must be made. Various other countries have their
own laws and regulations governing the sale of security tokens creating a complex web of regulatory requirements
for the sale of securities. Additionally, it can be seen that securities offerings have a wide range of reporting
requirements and distribution limitations. There are also a range of tax implications and transfer restrictions
associated with securities transactions.
To avoid regulatory compliance many parties are trying to restrict sales of security tokens to jurisdictions
that they believe have a regulatory framework that allows such sales. However, the inherent distributed nature of
blockchain makes it virtually impossible to restrict the jurisdiction of a security token sale. Further, governmental

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entities with potential jurisdiction of the security token include the applicable governmental entities having
jurisdiction of the original security token issuer, the security token seller, the security token purchaser, the venue
for security token exchange, and any locations in which the security token passes or is stored. The result is that
many parties have avoided the sale of tokenized assets entirely to avoid the expense and complexity of regulatory
compliance.
Thus, security token transactions will require an extensive, yet flexible, compliance framework. A potential
solution for the extensive and flexible compliance is to use a smart contract for a security token can reference a
compliance rule to self-enforce compliance with applicable securities regulations (compliance self-enforcing
security token). The compliance rule includes commands to check for compliance with SEC Regulation D,
Regulation S, or Regulation A. The compliance rule can verify that specific users meet the requirements for
purchase of a regulated security token (an accredited investors under Rule 501 of Regulation D). The compliance
self-enforcing security token includes a global registry of investors that can be referenced by the compliance rule.
The registry includes attributes of the investors so that the compliance rule can determine whether a security token
transaction complies, if necessary, with SEC regulations.

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Cryptocurrency Custody System/US20190266576
With the increasing use of cryptocurrencys, the need for a trusted custodial system that can securely store very
large quantities of cryptocurrencys and control access to those cryptocurrencys is increasing. U.S. securities
regulations require certain entities that hold more than a certain amount of funds (e.g., $150 million) on behalf of
another party to use a custodian to hold those funds. Hardware wallets and other forms of “cold storage” are
sometimes used to store cryptocurrency, however, those devices limit access only to the owner of the device and
are therefore not suitable for many business uses, where a number of individuals require access to cryptocurrencys.
The cryptocurrency custodial system (CCS) maintains custody of, and controlls access to, cryptocurrencies.
The CCS can be operated by a business enterprise (Cryptocurrency Custodian). The CCS includes multiple layers
of security so as to enable large volumes of cryptocurrencies to be maintained in a secure manner. The CCS
includes a combination of biometric-based multi-user validation, transaction risk analysis, and use of a hardware
security module (HSM) to provide authentication/validation functionality and secure storage of private keys of
cryptocurrencies.
When a user requests a transaction involving a cryptocurrency, such as a withdrawal of transfer of
cryptocurrency, the CCS causes an endorsement request message to be sent to each of multiple user devices, each
of which is associated with a different user who has been defined as potential member of a quorum for transactions
involving that cryptocurrency. The endorsement request message causes each receiving user device to prompt its
user to provide an endorsement of the requested transaction. The endorsement is an approval or rejection of an
operation by a user. When a user receiving such a prompt endorses the transaction on his or her user wallet, the

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user wallet signs an endorsement message with a private key of that user and transmits the signed endorsement
message to the CCS. The private key is stored within a secure enclave within the user wallet. A secure enclave in
each user device is used to store the corresponding user's private key and to generate digital signatures of that user.
The HSM determines whether a policy-based quorum of multiple users has endorsed (approved) a requested
action, such as a withdrawal or transfer of cryptocurrencys. It does this by validating the signature by a public key
of a public-private key pair for each of the plurality of users, in endorsement messages received from the users.
Only after determining that the policy-based quorum of the multiple users has validly endorsed the requested action,
the HSM then allows itself to access the private key of that particular cryptocurrencys, which the HSM previously
generated, and uses that private key to sign the transaction as authorization that the transaction proceed. The
private key for that cryptocurrency is stored only in the HSM, which does not permit the key to be read by any
entity outside the HSM. Approval of the transaction includes transmitting the transaction onto a known blockchain
network. The approval of the transaction by the HSM occurs only if and after the requested transaction has passed
a risk review, which can be partially or fully automated.

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