📊 COMPETITIVE ANALYSIS: SECURITIZE vs. OTCM PROTOCOL DOCUMENT

📋 Executive Summary

BlackRock's tokenization partner Securitize dominates institutional digital securities with more than $4 billion in assets tokenized and a $1.25 billion valuation. However, its middleware-on-public-chains architecture, centralized compliance overrides, and limited secondary liquidity reveal structural vulnerabilities that create opportunities for alternative approaches.

OTCM Protocol offers a fundamentally different model built on complete Layer 2 infrastructure control, mathematically-enforced security via Solana Token-2022 (ST22), and permanent liquidity mechanisms. This architecture positions OTCM Protocol to capture the underserved $50 billion illiquid OTC securities market that Securitize's institutional model cannot economically address.

🏛️ Part I: Securitize Profile

🏢 Company Overview and Institutional Dominance

Securitize was founded in November 2017 by Carlos Domingo and Jamie Finn to serve as a bridge between Wall Street and blockchain-based securities. The company raised approximately $147-200 million across funding rounds, with a pivotal $47 million Series C in May 2024 led by BlackRock. This investment placed Joseph Chalom, BlackRock's Global Head of Strategic Ecosystem Partnerships, on Securitize's board, cementing the institutional relationship that defines the company's market position.

In October 2025, Securitize announced a SPAC merger with Cantor Equity Partners II at a $1.25 billion pre-money valuation, with an expected Nasdaq listing under ticker SECZ in the first half of 2026. This public market debut will provide significant capital for expansion while validating the company's institutional-focused strategy.

The BlackRock relationship represents Securitize's crown jewel. The BUIDL fund (BlackRock USD Institutional Digital Liquidity Fund), launched in March 2024, has grown to more than $2.5 billion in assets under management, making it the world's largest tokenized real-world asset. Beyond BlackRock, Securitize counts Apollo, KKR, Hamilton Lane, and VanEck as institutional clients, establishing an impressive roster of traditional finance partnerships that few competitors can match.

📜 Regulatory Positioning: The Issuer-Sponsored Model

In Securitize's October 2025 submission to the SEC Crypto Task Force, CEO Carlos Domingo articulated a clear regulatory philosophy that defines the company's approach to tokenization. Securitize characterizes its model as "issuer-sponsored" tokenization, arguing that intermediaries should not tokenize public equity without the issuer's direct involvement and assent. The company's SEC-registered digital transfer agent works directly with issuers to "natively" mint tokenized securities without intermediary layers.

This regulatory positioning encompasses several key elements:

✅ All investors are KYC-verified and wallets are whitelisted before any transaction can occur, creating a permissioned architecture that satisfies traditional compliance requirements
✅ Rules-based smart contracts enforce lawful transfers and AML compliance throughout the asset lifecycle
✅ The platform includes token recovery capabilities, allowing lost, stolen, or impaired tokens to be burned and reissued by the transfer agent
✅ Securitize explicitly emphasizes that these are "not bearer securities"

Notably, Securitize's SEC submission explicitly characterizes competing approaches, including permissionless wrapped tokens and derivative securities, as "regulatory arbitrage" that creates "an uneven playing field" for compliant ecosystem participants. This positioning reflects Securitize's institutional DNA and its strategy of building within existing frameworks rather than seeking exemptions. However, it also reveals a fundamental philosophical difference with platforms serving markets that traditional infrastructure has abandoned.

🔧 Technology Architecture: Middleware on Public Chains

Securitize operates as blockchain-agnostic middleware, deploying the ERC-3643 (T-REX) token standard across more than 15 public blockchains including Ethereum, Polygon, Avalanche, and Solana. While this multi-chain approach provides flexibility, Securitize runs no blockchain infrastructure of its own. This architectural choice means the platform inherits the limitations of general-purpose chains, including gas fee volatility, scalability constraints, and computational limits on complex compliance rules.

The company operates with an SEC-registered transfer agent for custody and shareholder services, providing the institutional-grade infrastructure that its client base requires.

⚠️ Critical Limitations

Despite its market position, Securitize faces several structural limitations:

📉 Limited Liquidity: Securitize Markets ATS reports daily trading volume of approximately $600,000, a modest figure for a platform claiming market leadership
⏸️ Trading Disruptions: User complaints describe trading suspended for months due to custodian restructuring, revealing operational dependencies that can disrupt investor access
👤 Admin Overrides: The ERC-3643 standard includes administrative override powers such as force transfer, freeze, and recovery functions that allow administrators to override on-chain ownership. While these capabilities provide flexibility for compliance and error correction, they are antithetical to blockchain's trust-minimization principles and create centralization risks
💸 High Costs: The platform's cost structure also limits its addressable market. Setup fees exceeding $100,000 and minimum investments ranging from $10,000 to $5,000,000 exclude smaller issuers and retail investors

🟢 Part II: OTCM Protocol Advantages

🏰 The Alesia Doctrine: Complete Infrastructure Control

OTCM Protocol's architecture reflects a strategic philosophy drawn from Caesar's siege of Alesia: build complete defensive infrastructure rather than rely on external dependencies. Where Securitize deploys on public chains it does not control, OTCM Protocol builds proprietary Layer 2 infrastructure on Solana specifically designed for security token operations.

This architectural decision emerged from a critical discovery during development. Major decentralized exchanges like Raydium cannot support Token-2022 Transfer Hooks, meaning that tokens traded on these platforms would lose their security controls. Rather than compromise security to fit existing infrastructure, OTCM Protocol builds custom AMM functionality that preserves all 42 security controls on every transaction.

OTCM Protocol's implementation of Solana's Token-2022 program, designated Security Token 2022 (ST22), represents a fundamentally different approach to compliance enforcement than Securitize's ERC-3643. The company works with an SEC-registered transfer agent to provide custody and shareholder services for tokenized securities on the platform.

🛡️ Regulatory Positioning: SEC Category 1 Compliance Framework

OTCM Protocol has demonstrated consistent regulatory engagement with the SEC Crypto Task Force through multiple submissions. The company's regulatory strategy evolved significantly following the SEC's January 28, 2026 Joint Staff Statement on Tokenized Securities, which established the definitive framework for compliant tokenization.

In OTCM Protocol's January 3, 2026 submission to the SEC Crypto Task Force, CTO Frank Yglesias articulated the company's approach to issuer-sponsored tokenization. The January 28, 2026 SEC guidance subsequently validated this architecture by establishing the Category 1 (Issuer-Sponsored) framework as the gold standard for tokenized securities—precisely the model OTCM Protocol had been building toward.

The SEC's Category 1 framework aligns with OTCM's architecture on several key elements:

🌐 Issuer Authorization: OTCM requires formal board resolutions and shareholder approval for Series M preferred share issuance, satisfying the SEC's Category 1 requirement that tokenization occur "by or on behalf of the issuing company"
📋 SEC-Registered Transfer Agent Custody: Empire Stock Transfer (SEC Section 17A registered) maintains the official Master Securityholder File using DLT, as explicitly authorized by the December 2025 Transfer Agent FAQ guidance
📈 Direct Ownership Structure: Token holders maintain direct beneficial ownership claims on underlying equity—Category 1, Model A (Direct Integration) where "transfers of crypto assets on the blockchain result in corresponding transfers on official ownership records"
🚫 No Counterparty Risk: The SEC explicitly warns that Category 2 (Third-Party) tokenization exposes holders to "counterparty and bankruptcy risks that direct holders would not face." OTCM's issuer-sponsored model eliminates these risks entirely
⚡ Regulatory Recordkeeping Compliance: Full compliance with Exchange Act Rules 17Ad-2, 17Ad-6, 17Ad-7, 17Ad-10, 17Ad-11, 17Ad-12, and 17Ad-13 for transfer agent recordkeeping

OTCM's tokenization model utilizes a Preferred Series "M" share mechanism. Companies create special non-voting, non-dilutive preferred shares specifically designed for tokenization. These shares are irrevocably deposited with an SEC-registered transfer agent under permanent custody arrangements, and for each deposited share, exactly one ST22 Security Token is minted with mathematical precision. This structure provides direct ownership rights while maintaining 1:1 asset backing verified through reserve oracles.

This regulatory positioning reflects a fundamentally different philosophy than Category 2 third-party tokenization models. Where Category 2 platforms tokenize securities without issuer consent—exposing holders to counterparty and bankruptcy risks—OTCM's Category 1 framework ensures direct issuer authorization, SEC-registered custody, and transfer agent-maintained official records. The SEC's January 2026 guidance confirms this approach as the compliant path forward for tokenized securities.

SEC Guidance Quote: "Form should be disregarded for substance, and the emphasis should be on economic reality." — SEC Joint Staff Statement, January 28, 2026

⚖️ Token Standard Architecture: ERC-3643 vs. Token-2022 (ST22)

Beyond custody and business model differences, Securitize and OTCM Protocol employ fundamentally different token standards that determine how compliance is enforced at the protocol level. This architectural choice has profound implications for security, scalability, and transaction economics.

🔴 Securitize: ERC-3643 on Ethereum

Securitize builds on the ERC-3643 standard, formerly known as T-REX (Token for Regulated EXchanges), an open-source suite of smart contracts that extends ERC-20 with compliance functionality. Developed by Tokeny Solutions and now governed by the ERC-3643 Association, more than $28 billion in assets have been tokenized using ERC-3643, making it the dominant standard for institutional security tokens on Ethereum and EVM chains.

The ERC-3643 architecture consists of several interconnected components:

🔧 Smart Contract Overlay: Adds compliance functionality on top of standard ERC-20 tokens through additional smart contracts
🆔 ONCHAINID: Provides a decentralized identity system based on ERC-734/735, storing keys and verifiable claims for each investor
📋 Identity Registry: Maintains mapping between wallet addresses and verified identities
✅ Compliance Service: Offers modular rules engine checking transfer eligibility before execution
🏛️ Trusted Issuers Registry: Contains the list of approved claim issuers such as KYC providers and accreditation verifiers

However, ERC-3643 carries structural limitations:

👤 Admin Overrides: The standard includes administrative override powers through functions like forceTransfer(), freezePartialTokens(), and recoveryAddress(), allowing administrators to move tokens without holder consent
⚠️ Registry Manipulation Risk: Compliance depends on off-chain identity registries that can be modified
⛽ Gas Volatility: Ethereum transaction fees have historically ranged from $1 to more than $40 during network congestion
🐢 Throughput Constraints: Ethereum processes approximately 15 transactions per second, creating bottlenecks during high-volume periods
🔗 Off-chain KYC Dependency: Identity verification happens off-chain with only attestations stored on-chain

🟢 OTCM Protocol: Security Token 2022 on Solana

OTCM Protocol builds on Solana's Token-2022 program, also called Token Extensions, a native upgrade to Solana's SPL token standard that embeds compliance functionality directly into the protocol layer. Unlike ERC-3643's smart contract overlay approach, Token-2022 extensions are executed by the Token Extensions program itself rather than by external smart contracts.

The Token-2022 architecture provides:

⚙️ Native Protocol Extensions: Compliance features built directly into Solana's token program
🔗 Transfer Hooks: Enable custom instruction logic that executes on every token transfer via Cross Program Invocation (CPI), and this execution cannot be bypassed or disabled
🔐 Atomic Enforcement: The Token Extensions program itself enforces Transfer Hook execution, not external validators
🛡️ Signer Privilege Isolation: By design, the sender's signer privileges do not extend to the Transfer Hook program, preventing malicious exploitation
🔧 Composable Extensions: Multiple extensions can be combined, including transfer fees, confidential transfers, permanent delegation, and metadata
🔒 Immutability: Mint extensions must be applied during initialization and cannot be changed afterward

Token-2022 offers significant advantages over Ethereum-based alternatives:

Advantage	Details
💰 Ultra-Low Costs	Typical Solana transaction costs approximately $0.00025, enabling micro-transactions and high-frequency trading
⚡ Massive Throughput	Solana processes more than 65,000 transactions per second theoretically, with practical high throughput for real-world applications
🚀 Near-Instant Finality	Transaction confirmation occurs in approximately 400 milliseconds, compared to Ethereum's 12+ second block times
🔐 Mathematical Enforcement	Transfer Hooks execute automatically with mathematical enforcement that no administrator can bypass
🔍 Extensive Audits	The platform has completed more than seven security audits by firms including Halborn, Zellic, NCC, Trail of Bits, OtterSec, and Certora
🏛️ Institutional Adoption	Players including Paxos (USDP stablecoin), GMO Trust, and major RWA protocols are launching on Token-2022

📊 Token Standard Comparison Table

Dimension	ERC-3643 (Securitize)	Token-2022 / ST22 (OTCM)
⛓️ Blockchain	Ethereum + EVM chains (15+)	Solana (dedicated Layer 2)
🏗️ Architecture	Smart contract overlay on ERC-20	Native protocol-level extensions
📋 Compliance Model	Off-chain registry lookups	On-chain Transfer Hook enforcement
👤 Admin Override	Yes (forceTransfer, freeze, recover)	No—mathematically impossible
💸 Transaction Cost	$1-40+ gas fees	~$0.00025 per transaction
⚡ Transaction Speed	~15 TPS, 12+ sec blocks	65,000+ TPS, 400ms finality
🆔 Identity System	ONCHAINID (ERC-734/735)	Transfer Hook validation
📊 Market Adoption	$28B+ tokenized	Emerging institutional adoption
🔍 Security Audits	Multiple (Tokeny ecosystem)	7+ audits (Halborn, Zellic, etc.) Token-2022 Solana

⚠️ The Meme Token Crisis: Why These Controls Matter

OTCM Protocol's SEC submission documents the systemic fraud plaguing the broader meme token ecosystem, providing context for why its security architecture addresses a genuine market need.

The scale of losses is substantial:

💸 More than $69 million was lost to insider trading on Meteora from December 2024 to February 2025
🚨 Analysis confirmed that 99% of tokens on Pump.fun were scams, with 18,000 fake tokens created by a single user
🤖 Automated manipulation schemes stole $3.7 million
⚠️ Traditional meme token platforms charge $2-5 to launch with no audit, no limits, and no accountability, creating a billion-dollar fraud ecosystem that harms retail investors

🛡️ OTCM Protocol's ST22 Implementation

OTCM Protocol leverages Token-2022 Transfer Hooks to implement 42 distinct security controls that execute on every transaction:

🔒 Permanent Liquidity Locks: Make rugpulls mathematically impossible
🔴 Circuit Breakers: Trigger automatic halts when the 30% sell threshold is reached
📊 Wallet Limits: Enforce maximum holdings of 4.99% programmatically
🤖 Anti-Bot Protection: Prevent automated manipulation
⚡ Front-Running Prevention: Block sandwich attacks
✅ Comprehensive Compliance Verification: Ensure regulatory requirements are met

Unlike ERC-3643 where these would be policy promises subject to admin override, on OTCM Protocol they are mathematical certainties enforced at the protocol level.

OTCM's SEC submission describes this as a "mathematically impossible rugpull" architecture. The Transfer Hook program is invoked on every single token transfer without exception. This is not periodic monitoring or sampling but continuous, atomic validation that cannot be bypassed.

Real attack scenarios that devastate traditional meme tokens become mathematically impossible under this architecture:

Attack	OTCM Protection
💣 Insider Dump	Blocked by 4.99% wallet limits
⭐ Celebrity Pump-and-Dump	Trigger circuit breakers
🚪 Developer Exit Scams	Prevented by 60% token locks with vesting enforcement

Attack

OTCM Protection

💣

Insider Dump

Blocked by 4.99% wallet limits

⭐

Celebrity Pump-and-Dump

Trigger circuit breakers

🚪

Developer Exit Scams

Prevented by 60% token locks with vesting enforcement

🏦 Exchange and Liquidity Infrastructure: Dependencies vs. Ownership

A critical distinction between Securitize and OTCM Protocol lies in their approach to trading infrastructure. Securitize depends on external exchanges and third-party liquidity providers, creating operational dependencies that can disrupt trading. OTCM Protocol owns and operates its proprietary CEDEX exchange with open liquidity pools, ensuring permanent, uninterrupted market access aligned with the Alesia Doctrine's mandate for complete infrastructure control.

🔴 Securitize: Dependent on External Exchange Infrastructure

Securitize operates Securitize Markets, an SEC-registered Alternative Trading System (ATS), as its primary secondary trading venue. However, this infrastructure faces significant limitations that constrain liquidity and create operational risks:

📉 Limited Volume: Securitize Markets reports approximately $600,000 in daily trading volume, a modest figure for a platform claiming institutional leadership
⏰ Limited Hours: The ATS operates during traditional market hours, limiting global investor access and preventing 24/7 liquidity
⏸️ Trading Suspensions: User reports indicate trading suspensions lasting months during custodian restructuring events, representing infrastructure outside Securitize's control
🔗 External Dependencies: For broader liquidity, Securitize relies on external decentralized exchanges and bridges like Wormhole that introduce additional counterparty and smart contract risk
🚫 Limited Retail Access: Primary distribution through private placements limits retail participation and creates illiquid secondary markets
⚠️ Withdrawal Risk: Market making and liquidity provision depend on third-party relationships that can be withdrawn, modified, or disrupted

This dependency architecture means Securitize cannot guarantee continuous liquidity. When external partners experience technical issues, regulatory changes, or business decisions affecting their services, Securitize token holders bear the consequences through suspended trading or reduced market access.

🟢 OTCM Protocol: Proprietary CEDEX Exchange and Open Liquidity Pools

OTCM Protocol takes the opposite approach, building and operating its own Compliant Exchange for Digital Securities (CEDEX) with integrated open liquidity pools. This proprietary infrastructure ensures that trading can never be disrupted by external dependencies.

CEDEX Features:

✅ Complete Ownership: CEDEX is wholly owned and operated by OTCM Protocol, eliminating external dependencies that can disrupt trading
⏰ 24/7/365 Operation: Unlike traditional ATS venues, CEDEX operates continuously, enabling global investor participation across all time zones
🔐 Integrated Compliance: Token-2022 Transfer Hooks enforce all 42 security controls directly within the exchange, ensuring every trade meets compliance requirements
🔧 Custom AMM Infrastructure: Built specifically to support Token-2022 Transfer Hooks that external DEXs like Raydium cannot accommodate

Open Liquidity Pool Architecture:

📈 Algorithmic Pricing: Bonding curve mechanisms deliver continuous liquidity without requiring traditional market makers
🔒 Permanent Liquidity Locks: 40% of Security Meme Token supply is locked in liquidity pools permanently, making withdrawal or rugpull mathematically impossible
🌐 Open Participation: Any qualified holder can provide liquidity and earn proportional fees, democratizing market making
👁️ Transparent Pool Reserves: All liquidity pool balances are verifiable on-chain in real-time, ensuring complete transparency
🏦 Protocol-Owned Liquidity: OTCM Protocol itself maintains significant liquidity positions, ensuring baseline market depth regardless of external participation

📊 Exchange and Liquidity Infrastructure Comparison

Dimension	Securitize	OTCM Protocol
🏛️ Primary Exchange	Securitize Markets ATS (SEC-registered)	CEDEX (proprietary, wholly-owned)
🔗 Infrastructure Control	Dependent on external custodians, bridges, DEXs	Complete ownership per Alesia Doctrine
⏰ Trading Hours	Traditional market hours	24/7/365 continuous operation
📊 Daily Volume	~$600K/day ATS volume	Unlimited via bonding curves
💧 Liquidity Model	Third-party market makers, external LPs	Open liquidity pools + protocol-owned liquidity
🔒 Liquidity Permanence	Can be withdrawn by providers	40% permanently locked—cannot be withdrawn
📈 Pricing Mechanism	Order book matching	Algorithmic bonding curves
⚠️ Trading Disruption Risk	Suspensions reported during custodian changes	No external dependencies to cause disruption
👁️ Transparency	Quarterly reporting via ATS filings	Real-time on-chain pool verification

✅ Proven Results: Beta Test Validation

OTCM Protocol's infrastructure has already demonstrated real-world performance through a successful beta test program that validates both the technology and the market demand for tokenized OTC securities.

Beta Test Results:

🏢 Three public companies tokenized their securities through OTCM Protocol during the beta test
💰 The program generated $7 million in trading volume within 30 days, demonstrating immediate market demand for tokenized OTC securities
📊 Average daily volume reached $200,000 across just three issuers, already approaching one-third of Securitize's reported approximately $600,000 daily ATS volume
✅ All 42 security controls executed flawlessly on every transaction, proving the Token-2022 Transfer Hook architecture at scale

OTCM Protocol generates revenue through a 5% fee on all trades executed through CEDEX and the open liquidity pools. This fee structure creates substantial revenue potential as trading volume scales across the ecosystem. Using the beta test as a baseline, the $6 million in 30-day volume generated $300,000 in protocol revenue from just three issuers. Extrapolating this across hundreds or thousands of tokenized companies reveals the magnitude of the opportunity.

The OTC Markets ecosystem includes over 11,000 companies across Pink, OTCQB, and OTCQX tiers, each representing potential tokenization opportunities for OTCM Protocol. Many of these companies and their shareholders suffer from limited liquidity, restricted trading access, and the inability to efficiently price and transfer ownership. OTCM Protocol's issuer-friendly economics, with setup costs of $600-$10,000 compared to $100,000+ for enterprise alternatives, make tokenization accessible to the vast majority of this market that institutional platforms like Securitize cannot economically serve.

💰 Revenue Potential at Scale

Tokenized Issuers	Daily Volume (est.)	Annual Volume	Annual Protocol Revenue (5%)
3 (Beta)	$200K	$73M	$3.65M
50 issuers	$3.3M	$1.2B	$60M
250 issuers	$16.7M	$6.1B	$305M
1,000 issuers	$66.7M	$24.3B	$1.22B

These projections assume the beta test average of approximately $67,000 daily volume per issuer. Actual volume varies by issuer market cap, shareholder base, and trading interest. With more than 11,000 OTC companies representing the addressable market, even modest market penetration generates substantial protocol revenue.

🎯 Market Focus: NASDAQ vs. OTC and Secondary Global Markets

Beyond technology and business model differences, Securitize and OTCM Protocol pursue fundamentally different market strategies. This strategic divergence explains why these platforms are complementary rather than directly competitive, and why OTCM Protocol's addressable market may ultimately prove larger and more aligned with blockchain's democratizing mission.

🔴 Securitize: The NASDAQ Pipeline

Securitize explicitly targets the premium end of the market, focusing on companies with NASDAQ aspirations and institutional investors with significant capital. The client list including BlackRock, Apollo, and KKR, along with product design featuring high minimums and institutional custody, reflects this focus.

🎯 Target: Enterprise issuers such as large funds, established companies, and institutional-grade assets
👤 Investors: Institutional investors including accredited investors, family offices, and institutional allocators
💸 Minimums: Minimum investments of $10,000 to $5,000,000 exclude retail participation
💵 Setup: Setup fees exceeding $100,000 create barriers for smaller issuers
📍 Focus: Assets positioned for eventual traditional exchange listing

🟢 OTCM Protocol: OTC and Global Secondary Markets

OTCM Protocol targets the vast, underserved market of illiquid securities comprising thousands of companies too small for institutional attention but too valuable to languish in illiquidity.

🏢 OTC Companies: The platform serves OTC companies on OTC Markets across Pink, OTCQB, and OTCQX tiers with limited liquidity
📉 15c2-11 Casualties: It addresses the needs of companies that lost market maker support and became effectively untradeable
🌍 Global SMEs: Global SMEs seeking capital market access
👥 Retail Investors: Retail investors trapped in illiquid positions represent additional target segments
💸 Setup Costs: $600-$10,000 enable broad market participation

📊 Market Focus Comparison

Dimension	Securitize	OTCM Protocol
🎯 Primary Target	NASDAQ-bound institutional assets	OTC companies, 15c2-11 casualties, global SMEs
👤 Investor Focus	Accredited/institutional ($10K-$5M min)	All qualified investors (retail accessible)
💸 Setup Costs	$100,000+ enterprise pricing	$600-$10,000 issuer-friendly
📊 Market Size	Premium segment (well-served)	$50B+ trapped shareholder value (underserved)
📍 Competitive Position	Crowded institutional market	Blue ocean opportunity

💔 The "We've Been There" Narrative

OTCM Protocol's origins in Groovy Company provide authentic credibility that institutional competitors cannot replicate. Groovy Company experienced firsthand the devastating impact of losing 15c2-11 eligibility and watching more than 18,000 shareholders become trapped in illiquid positions. This lived experience, understanding the frustration of holding legitimate equity that cannot be practically traded, informs every aspect of OTCM Protocol's design. When OTCM Protocol speaks to potential issuers about shareholder pain, they speak from experience rather than institutional consulting playbooks.

🌊 Why OTC Markets Represent Blockchain's True Opportunity

The OTC market represents blockchain's greatest opportunity precisely because traditional finance has underserved it. Securitize's institutional clients already have functioning markets, qualified custodians, and regulatory compliance infrastructure. The incremental value of tokenization for BlackRock is efficiency and cost savings.

For OTC companies and their shareholders, tokenization through OTCM Protocol represents transformation from zero liquidity to functioning markets. The value proposition is not incremental improvement but the difference between having a market and having none. OTCM Protocol's $50 billion addressable market consists of trapped shareholder value held by real people who currently cannot sell at any price. This is not a market segment Securitize can economically serve, and it represents the most compelling use case for blockchain-based securities infrastructure.

📊 Part III: Strategic Comparison Matrix

Dimension	Securitize	OTCM Protocol	Advantage
⛓️ Token Standard	ERC-3643 on Ethereum	Token-2022 (ST22) on Solana	🟢 OTCM
💸 Transaction Cost	$1-40+ gas fees	~$0.00025	🟢 OTCM
⚡ Transaction Speed	~15 TPS, 12+ sec	65,000+ TPS, 400ms	🟢 OTCM
👤 Admin Override	Yes (force transfer, freeze)	No (mathematically impossible)	🟢 OTCM
🏦 Transfer Agent	Yes (SEC-registered)	Yes (SEC-registered)	⚖️ Tie
💧 Secondary Liquidity	~$600K/day ATS	24/7 bonding curves + CEDEX	🟢 OTCM
🎯 Target Market	NASDAQ/institutional ($100K+ setup)	OTC illiquid securities ($600-$10K)	⚖️ Different
📄 Regulatory Licenses	Transfer Agent, Broker-Dealer, ATS, EU	SEC-registered custody, Howey Shield	🔴 Securitize
🤝 Institutional Partners	BlackRock, Apollo, KKR	Empire Stock Transfer	🔴 Securitize
💰 Valuation	$1.25B	Early stage	🔴 Securitize
🌊 Market Opportunity	Premium segment (competitive)	$50B underserved (blue ocean)	🟢 OTCM

🏁 Part IV: Conclusion

🔴 Where Securitize Wins

Securitize's genuine competitive advantages include:

✅ Its first-mover regulatory moat with transfer agent, broker-dealer, and ATS registrations
✅ The company benefits from institutional relationships with BlackRock, Apollo, and KKR
✅ Its $1.25 billion valuation validates market acceptance of its approach
✅ ERC-3643's more than $28 billion in tokenized assets establishes it as the institutional standard
✅ Securitize's EU expansion makes it the first firm licensed in both the United States and European Union

🟢 Where OTCM Protocol Wins

OTCM Protocol's structural advantages include:

✅ Infrastructure Independence: The Alesia Doctrine eliminates third-party failure vectors
✅ Mathematical Security: ST22's mathematically-enforced security cannot be overridden, cannot enable rugpulls, and validates in less than 10 milliseconds
✅ Permanent Liquidity: Guarantees 24/7 market access via bonding curves
✅ Blue Ocean Opportunity: The $50 billion underserved market opportunity presents a blue ocean with limited competition
✅ Issuer-Friendly Economics: Transaction costs 200,000 times lower than Ethereum complete the value proposition

🤝 Strategic Positioning

Securitize and OTCM Protocol serve fundamentally different markets with fundamentally different architectures. Securitize's institutional DNA makes it ideal for BlackRock-style clients who need regulatory comfort and are willing to accept centralized control. OTCM Protocol's infrastructure independence and mathematical security make it ideal for the vast underserved market of illiquid securities where traditional finance has failed.

The competitive threat to Securitize is not OTCM Protocol taking its institutional clients. Rather, it is OTCM Protocol demonstrating that a better model exists. When OTCM Protocol's ST22 architecture processes billions in daily volume with zero admin overrides, instant settlement, and sub-cent fees, Securitize's middleware-on-Ethereum model will appear increasingly antiquated to sophisticated institutional clients.

The market is large enough for both platforms to succeed in their respective segments. However, the long-term trajectory favors OTCM Protocol's approach. Mathematically-enforced security, protocol-level compliance, and infrastructure independence represent the future of tokenized securities, while Securitize's centralized control and external dependencies represent a bridge to that future rather than the destination.

🔒 CONFIDENTIAL — For Internal Strategic Use Only

📄 APPENDIX B: Securitize SEC Letter (October 3, 2025)

78 SW 7th Street, Suite 500 Miami, FL 33130

📅 October 3, 2025

Via Electronic Mail

The Honorable Paul S. Atkins U.S. Securities and Exchange Commission 100 F Street NE Washington, D.C. 20549

Re: Securitize's Compliant, Issuer-Sponsored Security Tokenization Model

Dear Chairman Atkins,

Securitize appreciates the opportunity to provide a high-level overview of the firm's tokenization model as a contrast to some of the alternative offerings that have recently come to market, specifically as it relates to public equities. Securitize provides highly scalable and compliant tokenization solutions via its regulated subsidiaries that cover issuance, distribution and secondary market trading. The firm has pursued an approach that is innovative, leverages frontier-edge technologies of blockchains and smart contracts, all within a highly compliant model, unlike many other current and potential market entrants. We do not need or seek exemptions with respect to existing securities regulations, although some existing rules need to be modernized to accommodate blockchain solutions. It is our view that some of the 'competing' offerings to our approach represent a regulatory arbitrage and create the potential for an uneven playing field for other compliant ecosystem participants.

I. 📋 Tokenization Models

Recent enthusiasm to tokenize public securities has catalyzed a range of offerings that call into question the appropriate form of tokenized assets. Securitize's model is characterized as issuer-sponsored in contrast to some of the other approaches, i.e., we do not believe intermediaries should be tokenizing public equity without the issuer's involvement and assent.

A. ✅ Issuer-sponsored

Securitize Transfer Agent, LLC, a SEC-registered digital transfer agent, works directly with issuers to "natively" (meaning without intermediary layers) issue (or mint) a tokenized public equity.

The tokenized security is the equivalent of the traditionally issued security.
The tokenization process involves converting traditional shares held in book entry form at DTCC to a tokenized form that is captured on a blockchain-based master security file of the transfer agent.
The tokenized security confers the same ownership rights as the traditional security, including voting rights, dividend rights and other corporate actions.
Investors are always KYC-verified, and their wallets are whitelisted.
Whitelisting, coupled with rules-based smart contracts, ensures lawful transfers and AML compliance are always enforced throughout the lifecycle of the asset

B. ⚠️ Permissionless "wrapped" tokens

SPVs are created to hold the traditional shares, and a token representing an ownership interest in the SPV is issued (i.e. a wrapped token) to provide exposure to the stock held in the SPV. The wrapped token should be [is] deemed to be a security intrinsically.

This approach introduces additional counterparty risk to the investor as any potential claims would be against the SPV and not the actual issuer of the stock.
The wrapped token does not confer any ownership rights equivalent to owning the underlying stock, e.g., voting rights, dividend rights and so forth.
Lack of KYC: Other than at the point of purchase or redemption, investors who purchase in the secondary market are not subject to any KYC requirements.
Lack of transfer restrictions: after the initial purchase, the wrapped tokens can be freely transferred from wallet to wallet without verifications or sanctions screening.

C. ⚠️ Derivative securities

Synthetic products that provide exposure to the underlying stock. This is analogous to a total return swap or a security-based swap (SBS) construct and should be deemed to be a security or a security-based swap.

Exposure is purely economic: The product does not allow redemption for shares or units in the underlying asset and does not offer rights that would attach to a security purchased directly.
Investors are exposed to counterparty risk of the token issuer and attendant liquidity pool.
Lack of KYC in cases where the derivative security is permissionless.
If the security is SBS, the full panoply of SBS rules would have to be addressed, which complicated for US retail investors.

D. 📋 NASDAQ-DTCC Proposal

Without addressing all the specifics of this proposal (NASDAQ proposed rule SR 2025-072), I have a few concerns:

This proposal contemplates DTCC as the sole tokenization agent for minting and burning security tokens in the National Market System, despite other entities having superior technology and experience in tokenization, including Securitize.
It does not envision or enable improvements to the proxy distribution process, new types of regulated liquidity pools, or the ability for settlement other than T+1. We believe that blockchain technology and the tokenization of securities should be more aspirational.

We would like to work with NASDAQ and other exchanges and market centers to ensure that any tokenization model that leverages existing (and new) market infrastructure allows for competing tokenization agents, regulated market offerings, and settlement solutions outside of the DTCC complex. Such alternatives could improve the existing proxy distribution process, facilitate near real-time or end-of-day settlement, and enable additional utility, including lending and collateral mobility. At a minimum, as competing models are evaluated, an overarching goal should be to avoid protecting established intermediaries and regulated monopolies where possible.

III. 🔐 Transferability & Token Control: Permissioned vs. Permissionless

Securitize implements smart contracts with rules that govern the transferability of its tokenized securities. Coupled with the KYC verification and whitelisting requirements, this ensures that only eligible and approved investors can engage and transact as smart contracts enforce compliance with suitability, AML and issuer-defined requirements. Moreover, given the smart contract architecture and the existence of an off-chain security master file, any lost, stolen or otherwise impaired tokens can be burned and reissued by the TA (at the direction of the BD or the issuer) such that investors are made whole. These are, therefore, not bearer securities.

In contrast, permissionless, wrapped tokens lack compliance with respect to suitability, AML and the ability to address token impairment; secondary market purchasers are not known to token issuers, and transfers are not governed by smart contract. This result is risky bearer tokens that present regulatory challenges, including money laundering and other illicit uses.

IV. 📊 Secondary Market Trading

Securitize Markets, LLC is a SEC registered and FINRA member broker dealer that operates the Securitize Markets ATS and has bilateral relationships with OTC market makers. The firm's ATS provides several options to compliantly trade tokenized securities, including a standard order book and an RFQ option. The firm plans on offering trading in tokenized NMS stocks and will do so within the existing framework of Reg NMS and related regulations for off chain transactions. We anticipate, initially, offering execution services in partnership with one or more OTC market makers who will fully comply with best execution obligations. Additionally, the firm is approved to conduct dealer activity with respect to tokenized securities, which is also on our roadmap. For on-chain transactions, a de minimis exemption may be required given near real-time settlement and some latency in the block validation process. Nonetheless, at the time of a transaction (match), pricing oracles will be utilized to ensure an execution at or within the prevailing market.

Unlike wrapper or derivative models noted above, natively issued tokens are fungible and are not isolated within the walled gardens of a broker-dealer or other intermediary. Native tokenized securities can be traded in any compliant market center that support digital rails with respect to execution, settlement and custody. Moreover, these tokens support off-chain trading models that subsequently leverage on-chain rails for settlement and custody, such that the requirements of institutional investors can be accommodated.

In contrast, wrapped tokens are generally traded in secondary market venues that are not fungible, not regulated, and do not provide basic investor protections or enforce market integrity. These venues engage in activities that typically define broker-dealer activity (e.g., facilitating transactions in securities, charging commissions and so forth) without adherence to and acknowledgement of well-established securities laws and regulations. The same holds true for tokenized synthetic and derivative products.

In addition to the non-compliant nature of trading, wrapped tokens create practical, market structure inefficiencies given that they are not fungible. Today, there are multiple versions of the same NMS stock trading in siloed pools and characterized by illiquidity due to the constraints of the wrapped model. The net result is additional fragmentation in an already fragmented market, which reduces transparency and market liquidity while increasing counterparty risk and explicit trading costs.

V. 🔗 Composability/De-Fi Integration

Natively tokenized securities can be used to facilitate de-fi use cases, such as on-chain trading, lend/borrow pools and other collateral use-cases within whitelisted ecosystems that embed robust risk management capabilities. The notion that requiring a tokenized security to have a permissionless construct to effectively integrate within de-fi ecosystems is simply a misnomer. In fact, the rate of adoption of tokenized securities by traditional market participants and crypto-forward participants can and will be constrained with non-native models given the limitations previously outlined.

In summary, Securitize has implemented a tokenization model that unlocks utility while avoiding regulatory risk: 1) the model is fully compliant with existing securities regulations and does not require exemptive relief; and 2) the model has been validated in the marketplace, as demonstrated by meaningful AUM outstanding via top-tier issuer partners.

We look forward to further addressing any of the issues raised herein if needed as well as any other questions that may be adjacent to the tokenization of securities in general.

Sincerely,

Carlos Domingo Chief Executive Officer

Cc: Secretary of the Commission The Honorable Mark T. Uyeda, Commissioner, SEC The Honorable Caroline A. Crenshaw, Commissioner, SEC The Honorable Hester M. Peirce, Commissioner, SEC Jamie Selway, Director, Division of Trading and Markets The Crypto Task Force

📄 APPENDIX C: OTCM Protocol Executive Summary

📋 Executive Summary: OTC Meme Protocol (OTCM)

Comprehensive Analysis for the SEC Crypto Task Force

🌟 Overview: Solving America's $50 Billion OTC Market Crisis

The OTC Meme (OTCM) Protocol represents a groundbreaking regulatory-compliant solution to one of American finance's most pressing yet overlooked problems: the systematic abandonment of over 11,000 companies trading on over-the-counter markets, trapping an estimated $50+ billion in shareholder value. Through innovative blockchain technology combined with rigorous SEC compliance, OTCM demonstrates how crypto innovation can revitalize failing traditional financial infrastructure while enhancing rather than circumventing investor protections.

📊 Market Problem Scale:

Metric	Value
🏢 OTC Companies	11,000+ with severely impaired liquidity
💰 Trapped Value	$50+ billion across grey market securities
👥 Affected Shareholders	5 million unable to trade existing holdings
📉 Market Maker Support	90% of OTC companies lack any
💸 Annual Compliance Costs	$25,000-$75,000 forcing abandonment

🔧 Revolutionary Technical Innovation: The Perpetual Preferred Share Model

OTCM introduces an entirely new category of crypto asset that bridges traditional securities infrastructure with blockchain efficiency through a novel "perpetual preferred share" mechanism:

⚙️ Technical Architecture:

📜 Preferred Series "M" Creation: Companies create special non-voting, non-dividend preferred, non-144 conversion, non-preemptive strike Preferred shares class specifically and exclusively for tokenization
🔒 Permanent Custody: Shares are irrevocably deposited with Empire Stock Transfer, an SEC-registered transfer agent
⚖️ 1:1 Token Backing: Each deposited share backs exactly one blockchain token with mathematical precision
🤝 Company Commitment: Companies must purchase 40-60% of tokens immediately, demonstrating permanent skin in the game, issuer tokens are locked and have a leak-out mechanism
📈 Bonding Curve Trading: Community-driven price discovery through automated market maker mechanics
🚀 DEX Graduation: Successful tokens graduate to decentralized exchanges for enhanced liquidity

💡 Key Innovation: Unlike traditional tokenization attempts, OTCM creates permanent, irrevocable separation between tokens and underlying securities, eliminating redemption rights while maintaining asset backing—a structure that satisfies regulatory requirements while providing genuine economic value.

🛡️ Regulatory Compliance Framework: SEC Category 1 Issuer-Sponsored Tokenization

OTCM operates within the SEC's January 28, 2026 Joint Staff Statement on Tokenized Securities through full Category 1 (Issuer-Sponsored) compliance—the gold standard for tokenized securities established by three SEC divisions speaking with one voice.

⚖️ SEC Category Classification Analysis:

Element	OTCM Status	Explanation
🏢 Issuer Authorization	✓ Compliant	Board resolutions and shareholder approval obtained for Series M issuance
📋 Transfer Agent Custody	✓ Compliant	Empire Stock Transfer (SEC Section 17A registered) maintains custody
🔗 DLT as Official Record	✓ Compliant	Blockchain serves as Master Securityholder File per December 2025 guidance
👤 Direct Ownership	✓ Compliant	Token holders have direct beneficial ownership claims
🚫 Counterparty Risk	✓ Eliminated	No third-party intermediary between holder and equity
📊 Regulatory Recordkeeping	✓ Compliant	Rules 17Ad-2 through 17Ad-13 compliance

✅ Result: Tokens qualify as SEC Category 1, Model A (Direct Integration) tokenized securities

📋 January 2026 SEC Framework Compliance:

OTCM fully complies with the SEC's Joint Staff Statement by ensuring:

🏢 Issuer-Sponsored Structure: Tokenization occurs "by or on behalf of the issuing company" with formal corporate authorization
🔗 DLT Integration: Transfers on blockchain result in corresponding transfers on official ownership records (Model A)
📋 Transfer Agent Authorization: SEC Section 17A registered transfer agent maintains Master Securityholder File using DLT
🚫 No Category 2 Risks: Eliminates "counterparty and bankruptcy risks that direct holders would not face"
📊 Substance Over Form: Economic reality of direct equity ownership, regardless of blockchain format

🔐 Enhanced Regulatory Protections:

🏦 SEC-Registered Custody: Empire Stock Transfer provides Section 17A registered transfer agent services with DLT recordkeeping authorization
📋 Exchange Act Compliance: Full compliance with Rules 17Ad-2, 17Ad-6, 17Ad-7, 17Ad-10, 17Ad-11, 17Ad-12, and 17Ad-13
🆔 Issuer KYC/AML Compliance: Full identity verification and corporate verification for all participating issuers
📋 CUSIP Integration: Traditional securities identifiers maintained for regulatory tracking
⚠️ Comprehensive Disclosures: Extensive risk warnings exceeding traditional requirements
📊 Immutable Audit Trails: Complete on-chain transparency combined with transfer agent recordkeeping
🛡️ Protective Conversion Rights: Automatic conversion triggers protect token holders in bankruptcy/enforcement scenarios

📜 SEC Guidance Citation:

"Form should be disregarded for substance, and the emphasis should be on economic reality." — SEC Joint Staff Statement on Tokenized Securities, January 28, 2026

👥 Stakeholder Benefits and Market Impact

👤 For Shareholders (5+ Million Affected Americans):

💧 Restored Liquidity: Previously untradeable securities become liquid 24/7
📊 Fractional Trading: No minimum investment requirements unlike traditional markets
🌍 Global Access: Worldwide trading capability removing geographic barriers
⚡ Instant Settlement: Immediate trade finality versus T+2 traditional settlement
👁️ Enhanced Transparency: Real-time on-chain visibility of all trading activity

🏢 For Companies (11,000+ OTC Entities):

🔒 Permanent Market Support: Eliminates risk of market maker abandonment
💰 Reduced Costs: No ongoing market maker fees ($25K-$75K annually saved)
🌐 Global Investor Base: Access to international capital previously restricted
👥 Community Building: Direct engagement with token holder communities
✅ Compliance Simplification: One-time tokenization versus ongoing market support costs

🏛️ For Traditional Financial Institutions:

🔐 Safe Crypto Entry: Regulatory-compliant pathway into digital asset markets
⏰ 24/7 Operations: Extended trading capabilities beyond traditional market hours
💸 Cost Reduction: Elimination of traditional market maker spreads and fees
🛡️ Risk Mitigation: Professional custody through familiar SEC-registered entities
💧 Enhanced Liquidity: Market-making opportunities in previously illiquid securities

🪙 For Crypto Markets:

✅ Legitimate Use Case: Real-world utility beyond pure speculation
🔒 Asset Backing: Intrinsic value floor preventing total value destruction
📋 Regulatory Clarity: Clear commodity classification enabling institutional participation
🌉 Infrastructure Development: Bridge to traditional finance adoption
💡 Innovation Catalyst: Template for compliant crypto-traditional finance integration

🛡️ Investor Protection Enhancements

OTCM demonstrates how blockchain technology can enhance rather than diminish investor protections:

🔐 Risk Mitigation Features:

🚫 Rug Pull Prevention: Permanent share deposit prevents developer abandonment
📊 Asset Backing Floor: Real shares provide intrinsic value floor unlike pure meme tokens
🏦 Professional Custody: Institutional-grade security through Empire Stock Transfer
👁️ Transparency Maximization: All trading activity visible on immutable blockchain
✅ Regulatory Integration: Full compliance with existing investor protection frameworks

⚠️ Comprehensive Risk Disclosure:

📈 Extreme Volatility Warnings: Clear communication about community-driven price risks
💧 Liquidity Risk Education: Detailed explanation of bonding curve mechanics
🔧 Technical Risk Coverage: Smart contract audit requirements and upgrade procedures
📋 Regulatory Risk Acknowledgment: Recognition of evolving regulatory landscape
🚫 No Investment Promises: Explicit disclaimers about entertainment purpose

📜 Regulatory Policy Implications

OTCM's success demonstrates several critical insights for crypto regulation:

✅ Effective Regulatory Approaches:

🎯 Outcome-Based Regulation: Focus on investor protection outcomes rather than technology restrictions
🛡️ Safe Harbor Value: Clear guidelines enable compliant innovation versus regulatory avoidance
🤝 Traditional Integration: Crypto can enhance existing financial infrastructure rather than replace it
🏦 Professional Custody: SEC-registered intermediaries can safely bridge crypto-traditional gaps
👁️ Transparency Benefits: Blockchain visibility can exceed traditional market transparency

📈 Framework Scalability:

📋 Template Application: OTCM's approach can extend to other illiquid securities markets
🌍 International Adoption: Model compatible with international regulatory frameworks
🏛️ Institutional Integration: Clear pathway for traditional financial institution participation
💡 Innovation Incentives: Demonstrates how compliance can drive rather than hinder innovation
📊 Market Efficiency: Shows crypto's potential to solve rather than create market problems

💰 Economic Impact and Market Potential

📊 Immediate Market Opportunity:

Metric	Value
💰 Value Unlocked	$50+ Billion for trapped shareholders
💵 Fee Revenue	Sustainable 0.5% trading fee model generates permanent platform revenue
👥 Employment Creation	New roles in crypto-traditional finance bridge development
💡 Innovation Catalyst	Template for additional financial infrastructure improvements
🏛️ Tax Revenue	Enhanced trading activity generates increased capital gains tax revenue

🚀 Long-Term Systemic Benefits:

📈 Market Efficiency: More liquid price discovery for previously abandoned securities
💰 Capital Formation: Restored liquidity may encourage new OTC company formations
🌍 Financial Inclusion: Global access democratizes previously restricted investment opportunities
🔧 Infrastructure Modernization: Demonstrates blockchain's role in financial system upgrades
🏆 Regulatory Leadership: Positions US as leader in compliant crypto-finance integration

🏁 Conclusion: A New Paradigm for Compliant Crypto Innovation

The OTCM Protocol represents more than a technical innovation—it demonstrates a fundamentally new approach to crypto regulation that achieves regulatory objectives while enabling genuine innovation. By creating permanent asset-backed tokens that serve entertainment rather than investment purposes, OTCM solves real economic problems while staying clearly within existing regulatory frameworks.

🔑 Key Regulatory Takeaways:

✅ Compliance Drives Innovation: Clear regulatory guidance enabled OTCM's development
🔒 Asset Backing Enhances Protection: Real backing provides superior investor protection versus pure speculation
🏛️ Traditional Integration Works: SEC-registered intermediaries can safely custody crypto assets
🎯 Outcome Focus Succeeds: Regulating based on investor protection outcomes rather than technology types proves effective
💰 Economic Value Creation: Compliant projects can generate significant economic value for American markets

The Commission's February 2025 guidance on meme tokens has already proven its value by enabling projects like OTCM to proceed with confidence. The success of this framework suggests that continued regulatory clarity will drive further innovation that benefits both crypto adoption and traditional financial market efficiency.

💡 Strategic Recommendation: OTCM's model should be considered as a template for future safe harbor provisions, demonstrating how asset-backed, entertainment-focused tokens can serve legitimate economic functions while maintaining clear separation from securities regulations.

📋 Based on our experience operating at the intersection of traditional securities and blockchain technology, OTCM believes SEC tokenization policies should:

✅ Support tokenization models that utilize SEC-registered transfer agents as qualified custodians, ensuring institutional-grade custody with regulatory oversight.
✅ Recognize the use of public, permissionless blockchains (such as Solana) as consistent with investor protection when paired with appropriate custody arrangements and smart contract security controls.
✅ Provide targeted regulatory relief for tokenization models that serve markets abandoned by traditional financial infrastructure.
✅ Acknowledge that properly structured tokenized securities can provide superior investor protection through transparent, immutable transaction records and programmable compliance controls, in the meme token environment.

OTCM creates permanent trading markets for securities that traditional finance has abandoned. By combining SEC-registered transfer agent custody with Solana blockchain technology, we replace the opacity of defunct OTC markets with transparent, on-chain trading where every transaction is verifiable. This approach directly serves the SEC's investor protection mission by giving shareholders in abandoned companies something they currently lack: a functioning market and complete visibility into their holdings.

🔑 Key Policy Recommendations:

🌐 Permissionless Infrastructure: The SEC should support the use of public, permissionless blockchain systems being incorporated into securities markets as consistent with investors' rights to access liquid markets for securities that traditional infrastructure has abandoned.
🏦 Transfer Agent Integration: The SEC should support tokenization models that leverage SEC-registered transfer agents (such as Empire Stock Transfer) as qualified custodians, creating an auditable bridge between traditional securities infrastructure and blockchain technology.
👤 Investor Empowerment: The SEC should recognize that blockchain-based securities can provide enhanced investor protection through 24/7 market access, transparent price discovery via bonding curves, and programmable safeguards against market manipulation—protections unavailable in the abandoned OTC markets we serve.

Thank you in advance for considering our perspectives set forth in this letter and in the accompanying Roadmap. We would be happy to answer questions, expand upon our reasoning, and provide more details regarding why we believe Commission action on tokenized securities is warranted. OTCM stands ready to support the Commission's efforts in whatever form may be most useful.

Yours sincerely,

Frank Yglesias Chief Technology Officer OTCM Protocol

Cc: The Crypto Task Force SEC Investor Advisory Committee

📜 APPENDIX E: OTCM Protocol Roadmap for Tokenized Securities

✅ SEC CATEGORY 1 COMPLIANT | Issuer-Sponsored Tokenized Securities pursuant to SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026

I. 🏢 OTCM Protocol Profile

OTCM Protocol's mission is to create permanent, SEC-compliant market infrastructure for securities that traditional finance has abandoned. Over 11,000 companies trade on OTC markets, yet thousands have become completely untradeable, trapping an estimated $50 billion in shareholder value. Traditional market infrastructure fails these securities through compounding inefficiencies:

💸 Market makers ignore stocks trading less than $50,000 daily
📋 Compliance costs of $15,000-$75,000 annually force companies to abandon market reporting
🚫 Once securities fall into the "grey market," traditional finance offers no path to liquidity

OTCM's approach spans both traditional securities infrastructure through SEC-registered transfer agents and regulated blockchain deployment through public networks. From our perspective, adopting blockchain technology in financial markets isn't about replacing the traditional financial system—it's about creating markets where none exist, serving the millions of shareholders forgotten by traditional finance, while maintaining full compliance with federal securities laws.

⚖️ SEC Category 1 Regulatory Framework

Pursuant to the SEC's January 28, 2026 guidance on tokenized securities, OTCM Protocol operates exclusively within the Commission's favored Category 1: Issuer-Sponsored Tokenized Securities framework. The Commission expressly distinguished this model from disfavored Category 2 third-party tokenization approaches, affirming that only issuer-sponsored tokenized securities can represent true equity ownership with full shareholder rights.

📊 Category 1 Compliance Matrix

SEC Category 1 Requirement	OTCM Implementation	Status
🏛️ Direct issuer authorization	Board resolution required for Series M creation	✅ Compliant
📝 Official shareholder register	Certificate of Designation filed with SoS	✅ Compliant
🔐 Regulated custody	Empire Stock Transfer (SEC-registered)	✅ Compliant
💎 True equity backing	1:1 preferred shares with conversion rights	✅ Compliant
🔗 Clear ownership chain	CUSIP assignment + Golden Medallion Guarantee	✅ Compliant
🛡️ Investor protection mechanisms	Protective conversion triggers on adverse events	✅ Compliant
⚙️ Token standard compliance	SPL Token-2022 with Transfer Hooks	✅ Compliant

🔧 OTCM's Business Operations

OTCM's business consists of three integrated operational areas designed for full securities law compliance:

⚙️ Technology Infrastructure

We develop blockchain-based systems that support tokenization of real-world securities assets with regulatory compliance built into the protocol layer, consistent with the SEC's technology-neutral approach affirming that "the format in which a security is issued or the methods by which holders are recorded does not affect application of the federal securities laws."

🔗 OTCM Protocol Layer 2

Custom Solana-based infrastructure enabling issuer-authorized tokenized securities to operate with institutional-grade security controls, including Transfer Hook extensions for programmable securities compliance.

📈 Bonding Curve AMM

Automated market maker providing algorithmic price discovery and continuous liquidity for tokenized securities without traditional market maker dependency, operating within applicable securities trading regulations.

🏦 CEDEX (Centralized Exchange with Decentralized Frontend)

OTCM's proprietary trading venue built specifically for ST22 Tokenized Securities. Unlike external DEXs (Raydium, Orca) that cannot invoke Token-2022 Transfer Hooks, CEDEX maintains full Transfer Hook support on every trade, ensuring all 42 security controls remain active throughout the token lifecycle. This architecture solves the critical "graduation problem" where tokens moving to incompatible exchanges would lose their compliance protections.

🛡️ Security Control Framework

SPL Token-2022 Transfer Hook implementation with 42 built-in security controls including:

⚡ Circuit breakers
📊 Wallet concentration limits
🚨 Anti-manipulation mechanisms

These are mathematically-enforced compliance controls as referenced in the SEC's favorable treatment of issuer-controlled tokenization architectures.

🪙 Creating Issuer-Authorized Tokenized Securities

We support the creation of ST22 Tokenized Securities on public blockchains, each backed 1:1 by preferred shares held at an SEC-registered transfer agent. This issuer-authorization architecture satisfies the Commission's Category 1 requirements for direct ownership conveyance.

📜 ST22 Tokenized Securities

Tokenized representations of Preferred Series "M" shares created through direct issuer authorization:

🚫 Non-voting
🚫 Non-dividend
🔒 Permanently held in qualified custody
✅ Creating 1:1 backed digital securities with true equity ownership
✅ Full shareholder rights as endorsed by the SEC's January 2026 guidance

⚠️ Important: ST22 tokens are securities under federal securities laws and are marketed and traded as such.

🎫 OTCM Utility Token

Platform governance and utility token providing:

💰 Fee discounts (10-50% based on holdings)
🗳️ DAO voting rights
📈 Staking rewards (8-40% APY through issuer staking nodes)

📌 The OTCM Utility Token is structured and marketed as a utility token with functionality and governance rights, distinct from ST22 Tokenized Securities.

🏛️ Supporting Markets for Tokenized Securities

We support the trading, settlement, and custody of tokenized securities through compliant infrastructure designed to satisfy federal securities law requirements.

🤝 Empire Stock Transfer Partnership

SEC-registered transfer agent serving as qualified custodian for all backing Series M shares, providing:

🔐 Institutional-grade security
✅ Regulatory compliance
🔗 Direct integration with official shareholder registers as required by Category 1 classification

📊 OTCM Trading Platform

Primary marketplace for ST22 trading with:

📈 Integrated bonding curves
⚖️ Operating within applicable securities trading regulations
🛡️ Full Transfer Hook compliance on all transactions

🛡️ Investor Protection Framework

OTCM Protocol's architecture eliminates the counterparty, bankruptcy, and synthetic exposure risks that the SEC identified as problematic in Category 2 third-party tokenization models:

❌ → ✅ Risk Elimination Matrix

⚠️ Category 2 Risk	🛡️ OTCM Protection
🔴 Counterparty Risk	Direct issuer authorization and SEC-registered custody eliminates intermediary failure risk identified in Category 2 models
🔴 Bankruptcy Risk	Protective conversion triggers ensure token holders receive converted common stock directly in bankruptcy scenarios, avoiding general creditor status
🔴 Synthetic Exposure	Unlike Category 2 synthetic instruments providing only economic exposure without ownership rights, ST22's 1:1 preferred share backing provides true equity ownership through regulated channels with full shareholder rights

⚠️ Category 2 Risk

🛡️ OTCM Protection

🔴 Counterparty Risk

Direct issuer authorization and SEC-registered custody eliminates intermediary failure risk identified in Category 2 models

🔴 Bankruptcy Risk

Protective conversion triggers ensure token holders receive converted common stock directly in bankruptcy scenarios, avoiding general creditor status

🔴 Synthetic Exposure

Unlike Category 2 synthetic instruments providing only economic exposure without ownership rights, ST22's 1:1 preferred share backing provides

true equity ownership

through regulated channels with full shareholder rights

🏆 Competitive Differentiation

❌ OLD Positioning

"Our ST22 tokens aren't securities because of the Howey Shield"

✅ NEW Positioning

"Our ST22 tokens are SEC-compliant issuer-authorized tokenized securities—the only model the SEC explicitly endorses—with 1:1 real equity backing and institutional custody"

📋 Summary: OTCM Category 1 Advantages

🎯 Advantage	📝 Description
🏛️ Regulatory Moat	Issuer-authorization requirement creates barrier to entry for competitors without issuer relationships
🚀 First-Mover Position	Existing infrastructure and issuer pipeline already aligned with SEC-favored model
🛡️ Risk Mitigation	Protective conversion triggers eliminate counterparty/bankruptcy concerns cited by SEC
🏦 Institutional Appeal	Clear regulatory framework enables institutional participation
📈 Scalability	Model can be replicated across 15,000+ OTC issuers without regulatory restructuring
⚙️ Technical Foundation	ST22/SPL Token-2022 Transfer Hooks enable mathematically-enforced compliance controls

⚖️ Regulatory Disclaimer

📜 IMPORTANT: ST22 Tokenized Securities are securities under the federal securities laws. This document is for informational purposes only and does not constitute an offer to sell or solicitation of an offer to buy any securities. Any such offer will be made only by means of appropriate offering documents in compliance with applicable securities laws. Market participants should consult qualified securities counsel regarding specific compliance requirements.

Document Version: Category 1 Compliant | January 2026 Aligned with SEC Joint Statement dated January 28, 2026

II. 🌐 General Perspective

📈 The Tokenization Inflection Point

We agree with many commentators and financial institutions that global capital markets are entering a new phase enabling mass adoption of tokenization. However, most tokenization efforts to date have focused on assets that already function well in traditional markets—government securities, money market funds, institutional products. OTCM addresses a fundamentally different market segment: securities that traditional infrastructure has actively abandoned.

💔 The Crisis We Address

The crisis is substantial: approximately 5 million shareholders hold positions in securities that cannot be traded at any price—not because the underlying companies are worthless, but because no market infrastructure exists to facilitate trades.

These shareholders include:

👤 Affected Group	😔 Their Story
👩‍🏫 Retired Teachers	Mining stocks became untradeable overnight
👨‍💼 Employees	Accepted equity compensation now worth nothing on paper
👨‍👩‍👧‍👦 Families	Generational wealth evaporated when markets abandoned their holdings

👤 Affected Group

😔 Their Story

👩‍🏫

Retired Teachers

Mining stocks became untradeable overnight

👨‍💼

Employees

Accepted equity compensation now worth nothing on paper

👨‍👩‍👧‍👦

Families

Generational wealth evaporated when markets abandoned their holdings

🚫 Traditional finance offers these investors no hope.

⚖️ The SEC's Category 1 Framework: Our Foundation

The SEC's January 28, 2026 joint statement established a critical distinction between tokenization models. OTCM Protocol was architected from inception to satisfy what the Commission now formally endorses as Category 1: Issuer-Sponsored Tokenized Securities—the only model that can represent true equity ownership with full shareholder rights.

This regulatory clarity transforms our competitive position: while third-party and synthetic tokenization models face heightened scrutiny under the disfavored Category 2 classification, OTCM's issuer-authorized architecture exemplifies the Commission's preferred approach.

🏗️ Permanent Infrastructure for Permanent Problems

OTCM's products have been developed with a consistent goal: to create permanent market infrastructure through innovative use of preferred shares held in perpetual custody, fully compliant with federal securities laws. Unlike temporary market-making arrangements that can be terminated, our model creates:

🔒 Infrastructure that cannot be withdrawn
📊 Markets that cannot disappear
💎 Value that compounds across generations

🔑 Key Features

📜 The Preferred Series "M" Structure

Transforms traditional shareholder relationships into permanent, SEC-compliant tokenization arrangements. Companies contribute non-voting, non-dividend preferred shares through formal board authorization—satisfying the SEC's Category 1 requirement for direct issuer involvement. OTCM holds these shares in perpetuity at an SEC-registered transfer agent, creating continuous market support without ongoing payments.

📈 Bonding Curve Mechanisms

Provide 24/7 price discovery and instant settlement, replacing unreliable traditional market makers with algorithmic liquidity that cannot be withdrawn. This addresses the fundamental market abandonment problem: when traditional market makers leave, our infrastructure remains.

🏦 Empire Stock Transfer Partnership

SEC-registered transfer agent providing perpetual custody—the institutional foundation that makes permanent tokenization credible and Category 1 compliant. Once preferred shares are deposited:

🔐 Shares are marked with permanent restrictive legends
⚖️ Legends cannot be removed except through DAO governance approval
📋 Official shareholder register integration satisfies SEC requirements

🛡️ Mathematically-Enforced Compliance Controls

SPL Token-2022 Transfer Hooks implement 42 security controls at the protocol layer—circuit breakers, wallet concentration limits, and anti-manipulation mechanisms that execute on every transaction. This technical architecture ensures compliance cannot be circumvented, addressing the SEC's emphasis on investor protection in tokenized securities markets.

🎫 Token Classification Framework

Pursuant to the SEC's January 2026 guidance, OTCM maintains clear classification distinctions:

Token Type	Classification	Regulatory Treatment
📜 ST22 Tokenized Securities	Securities	Category 1 issuer-authorized tokenized securities with 1:1 preferred share backing, full shareholder rights, and SEC-registered custody
🎫 OTCM Utility Token	Utility Token	Platform governance token with fee discounts, DAO voting rights, and staking rewards—functionality and utility, not equity backing

Token Type

Classification

Regulatory Treatment

📜

ST22 Tokenized Securities

Securities

Category 1 issuer-authorized tokenized securities with 1:1 preferred share backing, full shareholder rights, and SEC-registered custody

🎫

OTCM Utility Token

Utility Token

Platform governance token with fee discounts, DAO voting rights, and staking rewards—functionality and utility, not equity backing

⚠️ For the avoidance of doubt: ST22 tokens are securities under federal securities laws. The format in which a security is issued does not affect application of the federal securities laws. This is our competitive advantage—not a limitation.

💡 Core Thesis: Permanent Solutions for Permanent Problems

⏳ The Problem	🔒 Our Solution
Market abandonment is permanent	Bonding curves provide permanent liquidity
Shareholder suffering is permanent	Series M custody is permanent
Traditional finance's failures are permanent	Protocol infrastructure is permanent
Regulatory uncertainty was permanent	SEC Category 1 framework provides permanent clarity

⏳ The Problem

🔒 Our Solution

Market abandonment is

permanent

Bonding curves provide

permanent

liquidity

Shareholder suffering is

permanent

Series M custody is

permanent

Traditional finance's failures are

permanent

Protocol infrastructure is

permanent

Regulatory uncertainty was

permanent

SEC Category 1 framework provides

permanent

clarity

By building permanent infrastructure through preferred shares held in perpetuity under SEC-compliant custody arrangements, we create markets that match the permanence of the problems they solve—now with explicit regulatory endorsement of our issuer-authorized architecture.

🏆 The Category 1 Advantage

The SEC's January 28, 2026 guidance validates what OTCM has built: the only tokenization model the Commission explicitly endorses. While competitors must restructure to meet new regulatory requirements, OTCM's Series M architecture already satisfies every element of Category 1 classification:

✅ Direct issuer authorization through board resolution
✅ Official shareholder register through Certificate of Designation
✅ Regulated custody through SEC-registered transfer agent
✅ True equity backing with 1:1 preferred shares
✅ Clear ownership chain with CUSIP assignment
✅ Investor protection through protective conversion triggers
✅ Token standard compliance through SPL Token-2022 Transfer Hooks

🎯 Strategic Position: OTCM is not seeking regulatory accommodation—we are the compliant pathway that the SEC has now formally endorsed.

Aligned with SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026

III. 🛤️ State of Play: Tokenization Pathways & SEC Classification

📊 The Regulatory Clarity Moment

Even as consensus around the value of tokenization has increased, there has been significant lack of consensus on which tokenization models to use—until now. The SEC's January 28, 2026 joint statement established the definitive regulatory framework, drawing a decisive line between two fundamentally different approaches:

🏷️ Category	📋 Description	⚖️ SEC Treatment
✅ Category 1	Issuer-Sponsored Tokenized Securities	Favored — True equity ownership with full shareholder rights
❌ Category 2	Third-Party Tokenized Securities	Disfavored — Heightened scrutiny, retail trading restrictions

🏷️ Category

📋 Description

⚖️ SEC Treatment

✅

Category 1

Issuer-Sponsored Tokenized Securities

Favored

— True equity ownership with full shareholder rights

❌

Category 2

Third-Party Tokenized Securities

Disfavored

— Heightened scrutiny, retail trading restrictions

🎯 OTCM Protocol operates exclusively within Category 1.

🔍 The Three Tokenization Pathways

We observe three primary pathways emerging in the market. OTCM's architecture intersects with each, but our implementation ensures Category 1 compliance across all elements:

A. 📋 Direct Registration (Issuer-Authorized)

The SEC's Preferred Approach

An issuer establishes an on-chain system of records through direct corporate authorization, integrating blockchain records into the official shareholder register.

🏗️ OTCM Implementation:

SEC Category 1 Requirement	OTCM Solution
🏛️ Direct issuer authorization	Board resolution required for Series M creation
📝 Official shareholder register	Certificate of Designation filed with Secretary of State
🔐 Regulated custody	Empire Stock Transfer (SEC-registered transfer agent)
🔗 Clear ownership chain	CUSIP assignment + Golden Medallion Guarantee

How It Works:

📜 Issuer's board of directors formally authorizes creation of Preferred Series "M" shares
📋 Certificate of Designation establishes Series M as official share class
🏦 Shares deposited with Empire Stock Transfer under permanent custody
⛓️ OTCM Protocol maintains on-chain system of record integrated with transfer agent records

✅ Category 1 Compliant: Direct issuer involvement creates clear legal ownership while enabling tokenization through authorized channels.

B. 👤 Beneficial Ownership Verification

Ensuring 1:1 Backing Integrity

Securities positions must be continuously verified and reconciled against underlying custody accounts to prevent fractional reserve or unbacked token issuance.

🏗️ OTCM Implementation:

Verification Layer	Function
🔮 Oracle Network	Real-time reconciliation between token supply and custodied shares
📊 Transfer Agent Integration	Empire Stock Transfer confirms share counts on-chain
🔒 Mint Authority Controls	Tokens can only be minted when corresponding shares are deposited
🔥 Burn Verification	Token redemption triggers share release from custody

The Reconciliation Guarantee:

Token Supply ≡ Custodied Series M Shares
         ↓
    Verified by Oracle
         ↓
    Attested by SEC-Registered Transfer Agent

✅ Category 1 Compliant: True equity backing verified through regulated custody—not synthetic exposure or mere entitlements.

C. 🪙 Tokenized Securities (New Digital Form)

Securities in Blockchain Format

The SEC's January 2026 guidance affirmed the technology-neutral principle: "The format in which a security is issued or the methods by which holders are recorded does not affect application of the federal securities laws."

🏗️ OTCM Implementation:

Element	Traditional Security	ST22 Tokenized Security
📜 Legal Form	Preferred Series "M" Shares	ST22 Token (SPL Token-2022)
🏦 Custody	Empire Stock Transfer	Empire Stock Transfer (unchanged)
📊 Record-Keeping	Transfer Agent Ledger	Blockchain + Transfer Agent
⚖️ Regulatory Status	Security	Security (same)
🛡️ Shareholder Rights	Full	Full (same)

ST22 Security Tokens:

📜 Function as digital native securities backed by Preferred Series "M" shares
⚖️ Are securities under federal securities laws (not commodities, not collectibles)
🔗 Maintain 1:1 backing with shares held at SEC-registered custodian
🛡️ Include protective conversion triggers for investor protection
⚙️ Trade on OTCM's compliant infrastructure with full Transfer Hook enforcement

✅ Category 1 Compliant: New tokenized instrument with direct issuer authorization and true equity backing—the structure the SEC explicitly endorses.

🔄 OTCM's Integrated Architecture

OTCM's architecture combines elements of all three pathways while maintaining Category 1 compliance throughout:

┌─────────────────────────────────────────────────────────────────┐
│                    🏛️ ISSUER AUTHORIZATION                      │
│         Board Resolution → Certificate of Designation           │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│                 🏦 SEC-REGISTERED CUSTODY                        │
│     Empire Stock Transfer → Series M Shares → CUSIP Assignment  │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│                  🔮 ORACLE VERIFICATION                          │
│      Real-Time Reconciliation → 1:1 Backing Confirmed           │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│                 ⛓️ ON-CHAIN SYSTEM OF RECORD                     │
│   OTCM Protocol → ST22 Token Minting → Transfer Hook Controls   │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│                    📊 COMPLIANT TRADING                          │
│      CEDEX Platform → 42 Security Controls → Investor Access    │
└─────────────────────────────────────────────────────────────────┘

❌ What OTCM Is NOT (Category 2 Distinctions)

The SEC's guidance identified problematic tokenization approaches that OTCM explicitly avoids:

❌ Category 2 Model	⚠️ SEC Concerns	✅ OTCM Difference
🔴 Custodial Receipt Tokens	Counterparty risk, bankruptcy exposure	Direct issuer authorization eliminates intermediary risk
🔴 Synthetic Equity Products	No ownership rights, only economic exposure	True 1:1 equity backing with full shareholder rights
🔴 Unauthorized Tokenization	No issuer involvement, legal uncertainty	Board resolution required—issuer is active participant
🔴 Security-Based Swaps	Cannot trade off-exchange to retail	ST22 tokens are securities, not derivatives

🛡️ The OTCM Difference: We don't create derivative exposure to securities—we create tokenized securities with direct issuer authorization and regulated custody.

🎯 Strategic Positioning Summary

Component	Function	Category 1 Alignment
📋 Direct Registration	Issuers Gateway Portal + Empire Stock Transfer	✅ Issuer authorization + regulated custody
👤 Beneficial Ownership	Oracle verification system	✅ True equity backing, not synthetic
🪙 Tokenized Security	ST22 Security Tokens	✅ Securities on blockchain with full rights
⛓️ System of Record	OTCM Protocol	✅ Integrated with official shareholder register

OTCM Protocol serves as the authoritative on-chain system of record, maximizing both regulatory clarity under the SEC's Category 1 framework and technological capability through SPL Token-2022 Transfer Hooks.

⚖️ Regulatory Note: The SEC's January 28, 2026 guidance confirms that tokenization changes market infrastructure but not regulatory obligations. ST22 Tokenized Securities are subject to federal securities laws, and OTCM's architecture is designed for full compliance with this framework.

Aligned with SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026

IV. 🔧 OTCM's Unique Technical Innovation

⚖️ Technical Architecture for Category 1 Compliance

OTCM's technical innovations are designed to satisfy the SEC's January 28, 2026 Category 1 requirements while providing investor protections that exceed traditional securities market standards. Our architecture implements mathematically-enforced compliance controls that execute at the protocol layer—ensuring regulatory requirements cannot be circumvented.

A. 📜 The Perpetual Preferred Share Model

OTCM introduces an entirely new category of issuer-authorized tokenized securities that bridges traditional securities infrastructure with blockchain efficiency through a novel "perpetual preferred share" mechanism. The key innovation is permanent separation between tokens and underlying securities, eliminating redemption complexity while maintaining true equity backing required by Category 1 classification.

🏗️ The Series M Architecture

Component	Function	Category 1 Alignment
📜 Preferred Series "M" Creation	Companies create special non-voting, non-dividend, non-redeemable preferred shares specifically designed for tokenization	✅ Direct issuer authorization through board resolution
🏛️ Certificate of Designation	Series M specifications filed with Secretary of State, creating official share class	✅ Integration with official shareholder register
🔐 CUSIP Assignment	Official securities identifier assigned to Series M shares	✅ Clear ownership chain
🏦 SEC-Registered Custody	Empire Stock Transfer holds shares under permanent custody arrangements	✅ Regulated custody requirement

Attribute	Design Rationale
🚫 Non-Voting	Ensures no governance dilution for existing common shareholders
🚫 Non-Dividend	Avoids ongoing financial burdens on issuer
🔄 Conditional Conversion Rights	Protects token holders through automatic conversion to common stock upon adverse events (bankruptcy, loss of transfer agent, criminal indictment)
🔒 Permanent Restrictive Legends	Cannot be removed except through DAO governance approval with supermajority thresholds

⚙️ The Tokenization Process

┌─────────────────────────────────────────────────────────────────┐
│  STEP 1: 🏛️ ISSUER AUTHORIZATION                                │
│  Board Resolution → Certificate of Designation → CUSIP          │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 2: 🏦 SEC-REGISTERED CUSTODY                               │
│  Series M Shares → Empire Stock Transfer → Permanent Custody    │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 3: 🔮 ORACLE VERIFICATION                                  │
│  Custody Confirmed → Share Count Attested → Mint Authorized     │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 4: ⛓️ 1:1 TOKEN MINTING                                    │
│  ST22 Security Token Minted → Transfer Hooks Activated          │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  STEP 5: 📊 COMPLIANT TRADING                                    │
│  CEDEX Platform → 42 Security Controls → Investor Access        │
└─────────────────────────────────────────────────────────────────┘

🤝 Issuer Commitment Requirements

Requirement	Purpose
💰 40-60% Token Purchase	Companies must purchase majority of minted tokens, demonstrating permanent commitment
🔒 Structured Vesting	20% at launch → 20% at graduation → 20% every 6 months
📈 Initial Liquidity	Issuer investment provides foundation for bonding curve liquidity
⛓️ On-Chain Enforcement	Vesting schedules enforced by Transfer Hooks—cannot be circumvented

💡 Key Innovation: Unlike third-party tokenization that creates counterparty and redemption risk (Category 2 concerns identified by the SEC), OTCM creates permanent, issuer-authorized tokenized securities with true equity backing that cannot be unwound without DAO governance approval.

B. 🔐 Mathematically-Enforced Compliance Architecture

OTCM's technical architecture incorporates 42 comprehensive security controls implemented through SPL Token-2022 Transfer Hook extensions. These controls create what we describe as "mathematically-enforced compliance"—investor protections that execute automatically on every transaction and cannot be circumvented or disabled.

⚖️ Why This Matters for Category 1

The SEC's January 2026 guidance emphasized investor protection as a critical element of compliant tokenization. OTCM's Transfer Hook architecture delivers protections that exceed traditional securities market standards:

Protection Type	Traditional Markets	OTCM Protocol
🔴 Circuit Breakers	Exchange-level, can be delayed	Protocol-level, atomic execution
📊 Concentration Limits	Disclosure-based, after-the-fact	Enforced on every transfer
🔒 Insider Restrictions	Policy-based, honor system	Code-enforced, mathematically guaranteed
🛡️ Manipulation Prevention	Regulatory investigation	Programmatic prevention

🛡️ The 42 Security Controls

Core Investor Protection Controls

Control	Function	SEC Alignment
🔴 Circuit Breakers	30% price drop triggers automatic 24-hour trading pause, preventing catastrophic collapse	Investor protection mechanism
📊 Wallet Concentration Limits	4.99% maximum holdings per wallet prevents whale accumulation	Anti-manipulation safeguard
🔒 Permanent Liquidity Locks	Graduation funds burned and permanently locked—irreversible commitment	Market stability guarantee
⏰ Vesting Enforcement	Issuer tokens released on schedule—Transfer Hook validates every transfer	Insider trading prevention
🛡️ Protective Conversion Triggers	Auto-conversion to common stock on adverse events protects token holders	Bankruptcy protection

Anti-Manipulation Controls

Control	Function
🤖 Anti-MEV Protection	Jito bundle integration prevents front-running and sandwich attacks
🔍 Bot Pattern Detection	Multi-layer anti-sniping systems identify and restrict automated manipulation
⚡ Flash Loan Detection	Monitors transaction flow, triggers alerts when volume exceeds 100x rolling 24-hour average
🔄 Cooldown Periods	Time delays between transactions prevent rapid-fire exploitation
📈 Volume Spike Detection	Identifies artificial trading activity patterns

⚙️ Transfer Hook Execution Model

┌─────────────────────────────────────────────────────────────────┐
│                    EVERY TOKEN TRANSFER                         │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│  🔍 TRANSFER HOOK INVOKED (Atomic, Cannot Be Bypassed)          │
├─────────────────────────────────────────────────────────────────┤
│  ✓ Wallet concentration check (≤4.99%)                          │
│  ✓ Vesting compliance verification                              │
│  ✓ Circuit breaker status check                                 │
│  ✓ Anti-bot pattern analysis                                    │
│  ✓ Volume anomaly detection                                     │
│  ✓ Cooldown period validation                                   │
└─────────────────────────────────────────────────────────────────┘
                              ↓
              ┌───────────────┴───────────────┐
              ↓                               ↓
┌─────────────────────┐         ┌─────────────────────┐
│  ✅ ALL CHECKS PASS  │         │  ❌ ANY CHECK FAILS  │
│  Transfer Executes  │         │  Transfer Rejected  │
└─────────────────────┘         └─────────────────────┘

🔒 Critical: The Transfer Hook program is invoked on every single token transfer—no exceptions. This is not periodic monitoring or sampling; it is continuous, atomic validation that cannot be bypassed. This represents a significant advancement over traditional securities markets, where manipulation protections rely on after-the-fact enforcement rather than programmatic prevention.

C. ⚠️ The Unregulated Token Crisis: Context for OTCM's Innovation

While OTCM's primary mission addresses the abandoned OTC securities market, our Layer 2 infrastructure also demonstrates the stark contrast between unregulated token platforms and SEC-compliant tokenized securities.

📊 The Scale of Unregulated Token Fraud

Incident	Loss	Platform
💸 Meteora insider trading (Dec 2024 - Feb 2025)	$69M+	Unregulated
🚨 Pump.fun scams (99% of tokens)	18,000+ fake tokens by single user	Unregulated
🤖 Automated manipulation schemes	$3.7M+	Unregulated
💣 $LIBRA crash (94% in minutes)	Substantial	Unregulated
⭐ ETHEREUMMAX (98% destruction)	Substantial	Unregulated

⚠️ These are not isolated incidents—they represent structural failures in unregulated token markets that lack the investor protections required under federal securities laws.

🚫 Why Unregulated Tokens Fail Investors

Problem	Unregulated Platform Reality
💧 No Liquidity Requirements	Liquidity can be pulled anytime; 99% of tokens have zero real liquidity
💣 No Insider Restrictions	Insiders can dump unlimited amounts anytime
🤖 No Manipulation Controls	Bots, wash trading, and coordinated dumps are rampant
🚫 No Accountability	Launch a scam for $2-5; dump and disappear in hours
⚖️ No Regulatory Framework	No investor recourse; no custody requirements; no disclosure

D. ✅ ST22 Tokenized Securities: The Compliant Alternative

OTCM's ST22 Tokenized Securities—operating under the SEC's Category 1 framework—provide the investor protections that unregulated platforms cannot offer because they are securities subject to federal securities laws.

📊 Platform Comparison: Unregulated vs. Category 1 Compliant

Feature	Pump.fun (Unregulated)	OTCM Protocol (Category 1)
⚖️ Regulatory Status	Unregulated tokens	SEC-compliant tokenized securities
🏦 Custody	None	SEC-registered transfer agent
🏛️ Issuer Authorization	None required	Board resolution required
💰 Minimum Liquidity	$0	$10,000+ SOL locked in smart contracts
🔒 Liquidity Locks	None—can be pulled anytime	Permanent—burned and locked forever
📊 Concentration Limits	None	4.99% maximum per wallet
⏰ Insider Vesting	None	60% locked with structured release
🔴 Circuit Breakers	None	30% drop triggers 24-hour pause
🛡️ Investor Protection	None	42 Transfer Hook security controls
📋 Audit Required	No	Yes—smart contract verification
💎 Asset Backing	None	1:1 preferred shares at SEC-registered custodian

🎯 Attack Scenarios: Unregulated vs. OTCM Response

Scenario	Unregulated Platform	OTCM Protocol (Category 1)
💣 Insider Dump	150 wallets coordinate 95% dump → 94% crash	4.99% max per wallet prevents accumulation; circuit breaker halts at 30%; 24-hour cooldown
⭐ Celebrity Pump-and-Dump	Celebrity tweets pump 10x → dump → 98% crash	Circuit breakers active; 60% tokens locked with vesting; cooldowns prevent rapid cycles
🚪 Developer Exit Scam	Devs hold 60%, dump at peak, disappear	60% permanently locked via Transfer Hook; exit scam mathematically impossible
🤖 Wash Trading	Bots create fake volume, coordinate dumps	4.99% limit prevents concentration; volume detection identifies manipulation
💧 Liquidity Rug	Developer pulls all liquidity overnight	Liquidity burned and locked —cannot be pulled under any circumstances

🔒 Why These Protections Matter for Securities

The SEC's Category 1 framework requires investor protection mechanisms. OTCM's Transfer Hook architecture delivers:

SEC Concern	OTCM Solution
🔴 Counterparty Risk	Direct issuer authorization + SEC-registered custody eliminates intermediary failure
💣 Bankruptcy Risk	Protective conversion triggers ensure token holders receive common stock directly
📊 Manipulation Risk	42 Transfer Hook controls enforce compliance on every transaction
🔒 Custody Risk	Empire Stock Transfer (SEC-registered) provides institutional-grade security

💡 The Fundamental Innovation

This is not incremental improvement over unregulated token platforms—it is a fundamentally different architecture: SEC-compliant tokenized securities with mathematically-enforced investor protections.

Dimension	Traditional OTC Markets	Unregulated Tokens	OTCM Protocol
⚖️ Regulatory Status	Securities	Unregulated	Securities (Category 1)
🏦 Custody	Transfer agent	None	SEC-registered transfer agent
📊 Market Making	Voluntary (often absent)	Manipulated	Algorithmic (permanent)
🛡️ Investor Protection	After-the-fact enforcement	None	Programmatic prevention
🔒 Manipulation Controls	Regulatory investigation	None	Protocol-level, atomic
💧 Liquidity	Abandoned	Fake/pullable	Permanent, locked

OTCM Protocol creates the best of both worlds: the regulatory clarity and investor protections of securities law combined with the technological efficiency and permanent liquidity of blockchain infrastructure.

⚖️ Regulatory Note: ST22 Tokenized Securities are securities under federal securities laws. The Transfer Hook security controls described herein are compliance mechanisms designed to satisfy investor protection requirements, not features that change the securities classification. OTCM's architecture is designed for full compliance with the SEC's Category 1 framework.

Aligned with SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026

V. 📋 Regulatory Alignment & Policy Recommendations

⚖️ Building on the SEC's Category 1 Framework

The SEC's January 28, 2026 joint statement on tokenized securities provides the regulatory clarity the industry has sought. Rather than requesting exemptions or special treatment, OTCM's recommendations focus on confirming and extending the Commission's Category 1 framework to maximize its benefits for investors in abandoned securities markets.

A. 🎯 OTCM's Perspective: Category 1 as Foundation

OTCM's perspective is that the SEC's January 28, 2026 guidance establishes a clear, workable framework for compliant securities tokenization. The Commission's distinction between Category 1 (Issuer-Sponsored) and Category 2 (Third-Party) tokenization provides the regulatory certainty necessary for responsible market development.

✅ Key Principles We Support

SEC Position	OTCM Alignment
🏛️ Issuer authorization required	Board resolution mandated for all Series M creation
📝 Official shareholder register integration	Certificate of Designation filed with Secretary of State
🏦 Regulated custody essential	Empire Stock Transfer (SEC-registered) serves as qualified custodian
💎 True equity backing required	1:1 preferred share backing with CUSIP assignment
🛡️ Investor protection mechanisms	42 Transfer Hook security controls + protective conversion triggers
⚖️ Securities laws apply to tokenized securities	ST22 tokens are marketed and traded as securities

💡 OTCM's Position: We are not seeking exemption from securities laws—we are demonstrating compliance with the SEC's preferred Category 1 framework.

B. 🤝 Alignment with Current SEC Initiatives

The SEC's recent actions demonstrate a clear pathway for compliant tokenization that aligns directly with OTCM's architecture:

📅 January 28, 2026: Tokenized Securities Guidance

The joint statement from the Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets established:

Guidance Element	OTCM Status
✅ Category 1 (Issuer-Sponsored) is favored	OTCM operates exclusively within Category 1
✅ Direct issuer authorization required	Board resolution required for all tokenization
✅ Regulated custody required	SEC-registered transfer agent custody in place
✅ True equity backing required	1:1 preferred shares, not synthetic exposure
❌ Category 2 (Third-Party) faces heightened scrutiny	OTCM avoids all Category 2 characteristics

📋 Transfer Agent Reform (2026 Priority)

The SEC has prioritized transfer agent reform as a target for rulemaking in early 2026. OTCM's model—utilizing Empire Stock Transfer as both qualified custodian and official record-keeper—demonstrates how existing transfer agent infrastructure can support compliant tokenization without requiring fundamental reform.

💡 Innovation Exemption Framework

The Commission's preparation to formally introduce an "innovation exemption" designed to provide regulatory flexibility for emerging technologies aligns with OTCM's compliance-first approach. However, OTCM submits that Category 1 compliant tokenization may not require innovation exemptions because it operates within existing securities law frameworks.

C. 📝 Specific Policy Recommendations

OTCM respectfully submits the following recommendations to strengthen and clarify the Category 1 framework established by the January 28, 2026 guidance:

1. 🏦 Transfer Agent Custody Confirmation

Recommendation: Confirm that SEC-registered transfer agents satisfy the "regulated custody" requirement for Category 1 tokenized securities.

Current State	Requested Clarification
SEC guidance requires "regulated custody"	Confirm transfer agents qualify as regulated custodians
OTCM uses Empire Stock Transfer	Confirm this arrangement satisfies Category 1
Transfer agent maintains official register	Confirm blockchain records can supplement (not replace) official registers

Rationale: The January 28 guidance identified regulated custody as essential for Category 1 compliance but did not explicitly list qualifying custodian types. Confirmation would provide certainty for compliant market participants.

2. 🛡️ Abandoned Securities Market Recognition

Recommendation: Recognize that Category 1 tokenization of securities in markets abandoned by traditional infrastructure provides unique investor protection benefits.

Market Segment	Traditional Finance Status	Category 1 Tokenization Benefit
🔴 Grey market securities	No market makers, no liquidity	Algorithmic liquidity via bonding curves
🔴 Expert Market securities	Retail investors excluded	Compliant access restored
🔴 Companies losing 15c2-11 eligibility	~$50B trapped shareholder value	Permanent market infrastructure

Rationale: Category 1 tokenization can restore markets where traditional infrastructure has failed, providing investor protection through liquidity where none currently exists. This aligns with the SEC's investor protection mandate.

3. ⚙️ Programmable Compliance Recognition

Recommendation: Acknowledge that smart contract-based compliance controls can provide investor protection equal to or superior to traditional market mechanisms.

Protection Type	Traditional Implementation	Transfer Hook Implementation
🔴 Circuit breakers	Exchange-level, discretionary	Protocol-level, automatic, atomic
📊 Concentration limits	Disclosure-based, after-the-fact	Enforced on every transfer
⏰ Insider trading restrictions	Policy-based, honor system	Code-enforced, mathematically guaranteed
🛡️ Manipulation prevention	Regulatory investigation	Programmatic, real-time prevention

Rationale: The SEC's guidance emphasized investor protection. OTCM's Transfer Hook architecture demonstrates that programmable compliance can exceed traditional market protections, supporting the Category 1 framework's goals.

4. 🌐 Permissionless Blockchain Clarification

Recommendation: Clarify that public, permissionless blockchains (such as Solana) may be used for Category 1 tokenized securities when paired with:

✅ SEC-registered transfer agent custody
✅ Direct issuer authorization
✅ 1:1 verifiable equity backing
✅ Appropriate compliance controls (Transfer Hooks)

Rationale: The January 28 guidance affirmed technology neutrality—"the format in which a security is issued or the methods by which holders are recorded does not affect application of the federal securities laws." This principle supports permissionless blockchain use when custody and issuer authorization requirements are satisfied.

5. 📈 Algorithmic Market Maker Guidance

Recommendation: Provide guidance on the use of bonding curve automated market makers for Category 1 tokenized securities, recognizing their potential to provide continuous liquidity without traditional market maker dependency.

Traditional Market Making	Bonding Curve AMM
Voluntary participation	Algorithmic, permanent
Can withdraw at any time	Liquidity locked, cannot be removed
Concentrated in liquid securities	Serves abandoned markets
Counterparty risk	Smart contract execution

Rationale: The abandoned securities market crisis exists precisely because traditional market makers have no economic incentive to serve illiquid securities. Bonding curves provide permanent, non-withdrawable liquidity—addressing the market failure that Category 1 tokenization can solve.

6. 🔄 Protective Conversion Trigger Confirmation

Recommendation: Confirm that protective conversion triggers (automatic conversion to common stock upon adverse events) satisfy investor protection requirements for Category 1 tokenized securities.

Trigger Event	Protection Provided
🚨 Issuer bankruptcy	Token holders receive common stock directly, avoiding general creditor status
🚨 Loss of transfer agent services	Automatic conversion preserves shareholder rights
🚨 Criminal indictment of officers	Immediate conversion protects token holders
🚨 Material breach of token holder rights	Enforcement mechanism for issuer obligations

Rationale: The SEC's guidance identified bankruptcy and counterparty risk as concerns in Category 2 models. OTCM's protective conversion triggers directly address these concerns, providing investor protection that exceeds traditional securities structures.

D. 📊 Summary: Category 1 Compliance, Not Exemption

Approach	Traditional Request	OTCM Position
❌ Exemption from securities laws	"Our tokens aren't securities"	ST22 tokens ARE securities—this is our advantage
❌ Regulatory carve-out	"Create special rules for us"	We comply with existing Category 1 framework
❌ Commodity classification	"Treat tokens as non-securities"	Securities classification provides investor protection
✅ Framework confirmation	N/A	Confirm our architecture satisfies Category 1
✅ Guidance clarification	N/A	Clarify application to abandoned securities markets

🎯 Strategic Position: OTCM is not seeking accommodation from securities laws—we are demonstrating that the SEC's Category 1 framework enables compliant tokenization of securities that traditional finance has abandoned.

E. 🏆 The Category 1 Advantage for Regulators

The SEC's January 28, 2026 framework provides benefits for regulators as well as market participants:

Regulatory Benefit	How Category 1 Delivers
📋 Clear jurisdiction	Tokenized securities are securities—no classification disputes
🏦 Existing oversight	Transfer agents already SEC-registered and examined
🛡️ Investor protection	Programmable compliance exceeds traditional mechanisms
📊 Market integrity	On-chain transparency enables real-time monitoring
⚖️ Enforcement capability	Issuer authorization creates clear accountability chain

⚖️ Conclusion: The SEC's January 28, 2026 guidance establishes a workable framework for compliant securities tokenization. OTCM's recommendations focus on confirming and extending this framework—not seeking exemption from it. Category 1 compliance is our competitive advantage, not a regulatory burden.

Submitted in response to SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026

VI. 💰 Economic Impact and Market Potential

⚖️ Category 1 Compliance Enables Market Restoration

The SEC's January 28, 2026 guidance establishing Category 1 (Issuer-Sponsored Tokenized Securities) as the favored regulatory pathway unlocks significant economic potential for markets that traditional finance has abandoned. These benefits flow from regulatory compliance—not despite it.

A. 📊 Immediate Market Opportunity

💎 The Trapped Value Problem

Metric	Value	Category 1 Solution
💰 Trapped Shareholder Value	$50+ Billion	Issuer-authorized tokenization restores liquidity through compliant infrastructure
👥 Affected Shareholders	5+ Million individual investors holding positions they cannot sell at any price	SEC-compliant trading venues provide lawful exit opportunities
🏢 Potential Issuers	11,000+ companies across OTC markets (OTCQX to Grey Market)	Direct issuer authorization (Category 1) creates clear pathway
🔴 Companies Losing 15c2-11	Hundreds annually	Permanent tokenized infrastructure survives regulatory status changes

🏦 Why Category 1 Unlocks This Value

Traditional Finance Failure	Category 1 Solution
❌ Market makers abandon illiquid securities	✅ Bonding curve AMM provides permanent, algorithmic liquidity
❌ No infrastructure for grey market trading	✅ SEC-compliant tokenized infrastructure creates permanent markets
❌ Compliance costs force companies to abandon reporting	✅ Tokenization reduces ongoing infrastructure costs
❌ Retail investors trapped with no exit	✅ 24/7 compliant trading restores liquidity access

B. 💵 Revenue Model: Sustainable Platform Economics

OTCM's fee structure creates sustainable platform economics while maintaining compliance:

Revenue Stream	Rate	Alignment
📊 Transaction Fees	5% per trade	Funds ongoing compliance and platform maintenance
🏛️ Issuer Onboarding	$1,000 - $25,000	Covers legal structuring, Series M creation, custody setup
🔒 Liquidity Requirements	40% of SMTs locked	Ensures permanent market infrastructure
🎫 OTCM Utility Token Staking	8-40% APY	Platform governance and fee discount mechanism

💡 Economic Sustainability

Traditional Model	OTCM Category 1 Model
Market makers require ongoing payments	Bonding curves provide liquidity without ongoing costs
Infrastructure can be withdrawn	Locked liquidity creates permanent markets
Compliance costs burden issuers	One-time setup; ongoing compliance is protocol-level
Revenue depends on issuer health	Transaction fees create platform-level sustainability

C. 🚀 Long-Term Systemic Benefits

Category 1 compliant tokenization delivers systemic benefits that align with SEC investor protection mandates:

📈 Market Efficiency

Benefit	Mechanism	Investor Protection Alignment
🔍 Price Discovery	Bonding curves provide continuous, algorithmic pricing	Transparent, manipulation-resistant price formation
⚡ Settlement Speed	Near-instant blockchain settlement	Reduced counterparty and settlement risk
📊 Market Depth	Locked liquidity ensures permanent market depth	Investors can exit positions at fair prices
🕐 Trading Hours	24/7/365 availability	Global access without market hour restrictions

💰 Capital Formation

Current State	Category 1 Future
Companies avoid OTC markets due to liquidity fears	Permanent tokenized infrastructure provides liquidity assurance
Private companies avoid public markets	Compliant tokenization offers public market benefits without traditional burdens
Early investors trapped by illiquidity	Secondary market liquidity encourages earlier-stage investment
Geographic restrictions limit capital access	Global, compliant infrastructure expands investor base

💡 Economic Impact: Restored liquidity may encourage new company formations in OTC markets, knowing permanent, SEC-compliant market infrastructure exists.

🌍 Financial Inclusion

Barrier	Category 1 Solution
🌐 Geographic Restrictions	Global 24/7 access to SEC-compliant tokenized securities
🕐 Market Hours	Continuous trading eliminates time zone barriers
💵 Minimum Investment	Fractional token ownership reduces entry barriers
🏦 Brokerage Requirements	Direct wallet access (with appropriate compliance)

⚠️ Compliance Note: Financial inclusion benefits operate within applicable securities laws. Accredited investor requirements and other regulations apply to ST22 Tokenized Securities.

🔧 Infrastructure Modernization

Category 1 tokenization demonstrates blockchain's role in financial system upgrades:

Infrastructure Component	Traditional Limitation	Blockchain Advantage
📋 Record-Keeping	Multiple intermediaries, reconciliation delays	Single source of truth, real-time updates
🔒 Custody	Counterparty risk, intermediary failure	SEC-registered custody + on-chain verification
⚖️ Compliance	After-the-fact enforcement	Programmatic, real-time enforcement via Transfer Hooks
📊 Transparency	Delayed reporting, incomplete visibility	On-chain transparency for all participants
🛡️ Investor Protection	Policy-based, discretionary	Code-enforced, mathematically guaranteed

🏆 U.S. Regulatory Leadership

The SEC's Category 1 framework positions the United States as a global leader in compliant securities tokenization:

Jurisdiction	Approach	Outcome
🇺🇸 United States	Category 1 framework with clear issuer authorization requirements	Compliant innovation within securities law
🇪🇺 European Union	MiCA regulation (markets in crypto-assets)	Separate crypto framework, unclear securities treatment
🇬🇧 United Kingdom	FCA sandbox approach	Limited scale, regulatory uncertainty
🇸🇬 Singapore	MAS licensing framework	Fragmented approach
🇨🇭 Switzerland	DLT Act	Narrow application

🎯 Strategic Position: The SEC's January 28, 2026 guidance provides the clearest regulatory framework globally for compliant securities tokenization—a competitive advantage for U.S. capital markets.

D. 📊 Projected Market Development

🗓️ Year 1-5 Scaling Trajectory

Year	Target Issuers	Estimated Value Unlocked	Platform Status
📅 Year 1	100 companies	$500M - $1B	Layer 2 launch, initial market validation
📅 Year 2	500 companies	$2.5B - $5B	Institutional adoption, expanded custody partnerships
📅 Year 3	1,500 companies	$7.5B - $15B	International expansion (Anglo markets)
📅 Year 4	3,000 companies	$15B - $30B	Developed market expansion
📅 Year 5	5,000 companies	$25B - $50B+	Full market penetration, emerging market entry

📈 Value Creation Flywheel

┌─────────────────────────────────────────────────────────────────┐
│              🏛️ CATEGORY 1 COMPLIANCE ESTABLISHED               │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│              📊 ISSUERS TOKENIZE SECURITIES                      │
│         (Board authorization, SEC-registered custody)           │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│              💧 LIQUIDITY RESTORED TO SHAREHOLDERS               │
│         (Bonding curves, permanent infrastructure)              │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│              📈 MARKET VALIDATION ATTRACTS MORE ISSUERS          │
│         (Network effects, reduced onboarding friction)          │
└─────────────────────────────────────────────────────────────────┘
                              ↓
┌─────────────────────────────────────────────────────────────────┐
│              🏆 PLATFORM BECOMES STANDARD INFRASTRUCTURE         │
│         (Category 1 compliance = competitive moat)              │
└─────────────────────────────────────────────────────────────────┘

E. 🛡️ Investor Protection as Economic Value

The SEC's investor protection mandate creates economic value—not just regulatory compliance:

Protection Mechanism	Economic Benefit
🔴 Circuit Breakers	Prevents panic selling that destroys shareholder value
📊 Concentration Limits	Prevents whale manipulation that harms retail investors
🔒 Permanent Liquidity	Creates market confidence that attracts participation
⏰ Vesting Enforcement	Prevents insider dumps that destroy markets
🛡️ Protective Conversion	Preserves shareholder value in adverse scenarios

💡 Key Insight: Investor protection isn't a cost of compliance—it's the foundation of market confidence that enables the $50B+ value restoration opportunity.

F. 📋 Economic Impact Summary

Dimension	Impact	Category 1 Enablement
💰 Value Restoration	$50B+ trapped shareholder value	SEC-compliant infrastructure creates lawful markets
👥 Investor Access	5M+ shareholders regain liquidity	Category 1 tokenization provides compliant exit
🏢 Issuer Enablement	11,000+ potential companies	Direct issuer authorization creates clear pathway
🌍 Market Expansion	Global 24/7 access	Blockchain efficiency within securities law framework
🔧 Infrastructure	Permanent, non-withdrawable	Locked liquidity + SEC-registered custody
🏆 Competitive Position	U.S. regulatory leadership	Category 1 framework is global best practice

⚖️ Conclusion: The economic opportunity in abandoned securities markets is substantial—$50B+ in trapped shareholder value affecting 5M+ investors. The SEC's Category 1 framework provides the regulatory clarity necessary to unlock this value through compliant tokenization. OTCM's architecture demonstrates that investor protection and market innovation are complementary, not competing, objectives.

Economic projections based on OTC Markets Group data, SEC filings, and OTCM Protocol market analysis. Actual results may vary. ST22 Tokenized Securities are securities subject to federal securities laws.

Aligned with SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026

VII. 🏁 Conclusion

⚖️ Category 1 Compliance: The Foundation of Market Innovation

OTCM Protocol represents more than technical innovation—it demonstrates that regulatory compliance and market innovation are complementary objectives. The SEC's January 28, 2026 guidance establishing Category 1 (Issuer-Sponsored Tokenized Securities) as the favored regulatory framework validates an architecture that OTCM has built from inception.

🏗️ What OTCM Has Built

Component	Implementation	Category 1 Alignment
🏛️ Issuer Authorization	Board resolution required for all Series M creation	✅ Direct issuer involvement
📝 Official Register	Certificate of Designation filed with Secretary of State	✅ Shareholder register integration
🏦 Regulated Custody	Empire Stock Transfer (SEC-registered transfer agent)	✅ Qualified custodian requirement
💎 True Equity Backing	1:1 preferred shares with CUSIP assignment	✅ Real ownership, not synthetic
🔗 Clear Ownership Chain	Golden Medallion Guarantee + on-chain verification	✅ Traceable ownership rights
🛡️ Investor Protection	42 Transfer Hook security controls + protective conversion triggers	✅ Exceeds traditional market standards
⚖️ Securities Classification	ST22 tokens are securities under federal securities laws	✅ Clear regulatory treatment

💡 Key Point: OTCM is not seeking exemption from securities laws—we are demonstrating compliance with the SEC's preferred Category 1 framework.

🎯 The Strategic Position

The SEC's January 28, 2026 guidance transforms OTCM's competitive position:

Dimension	Pre-Guidance	Post-Guidance
⚖️ Regulatory Status	Seeking clarity	Category 1 compliant
🏆 Competitive Position	First mover	Regulatory moat
🏛️ Institutional Appeal	Uncertain	SEC-endorsed framework
📊 Market Opportunity	Speculative	Validated pathway

❌ What We Are NOT

Disfavored Approach	OTCM Difference
🔴 Third-party tokenization (Category 2)	Direct issuer authorization required
🔴 Synthetic equity exposure	True 1:1 preferred share backing
🔴 Custodial receipt models	SEC-registered transfer agent custody
🔴 Seeking commodity classification	ST22 tokens ARE securities—this is our advantage
🔴 Requesting exemptions	Demonstrating existing compliance

🛡️ Investor Protection as Competitive Advantage

The SEC's investor protection mandate aligns with OTCM's technical architecture:

SEC Objective	OTCM Implementation	Result
🔴 Eliminate counterparty risk	Direct issuer authorization + SEC-registered custody	Intermediary failure impossible
💣 Address bankruptcy concerns	Protective conversion triggers	Token holders receive common stock directly
📊 Prevent manipulation	42 Transfer Hook controls on every transaction	Programmatic prevention, not after-the-fact enforcement
🔒 Ensure custody security	Empire Stock Transfer + permanent restrictive legends	Institutional-grade protection
💎 Verify asset backing	Oracle verification + on-chain attestation	Real-time 1:1 confirmation

🎯 Strategic Insight: Investor protection creates market confidence. Market confidence attracts participation. Participation creates liquidity. Liquidity unlocks the $50B+ trapped shareholder value opportunity.

💰 The Economic Opportunity

Category 1 compliance enables restoration of markets that traditional finance has abandoned:

Market Segment	Problem	Category 1 Solution
🔴 Grey Market Securities	No market makers, no liquidity	Permanent bonding curve infrastructure
🔴 Expert Market Securities	Retail investors excluded	Compliant access restored
🔴 Companies Losing 15c2-11	Shareholders trapped	Tokenized infrastructure survives status changes
💰 $50B+ Trapped Value	5M+ affected shareholders	SEC-compliant markets unlock liquidity

🤝 Alignment with Commission Objectives

OTCM Protocol's mission aligns directly with the SEC's statutory mandate:

SEC Mandate	OTCM Contribution
🛡️ Investor Protection	42 security controls + protective conversion triggers exceed traditional standards
📊 Fair, Orderly Markets	Bonding curves provide continuous, manipulation-resistant price discovery
💰 Capital Formation	Restores liquidity to abandoned markets, encouraging new company formations
🔍 Transparency	On-chain visibility provides real-time market monitoring capability

📋 Summary: What We Ask

OTCM does not seek exemption from securities laws. We request confirmation that our existing architecture satisfies the Category 1 framework:

Request	Purpose
✅ Confirm transfer agent custody	Verify Empire Stock Transfer arrangement satisfies "regulated custody" requirement
✅ Recognize abandoned market service	Acknowledge investor protection value of restoring liquidity where none exists
✅ Acknowledge programmable compliance	Confirm Transfer Hook controls satisfy investor protection objectives
✅ Clarify permissionless blockchain use	Confirm public blockchains acceptable when paired with Category 1 compliance

🏆 The Category 1 Advantage

The SEC's January 28, 2026 guidance creates a clear regulatory framework that:

✅ Validates OTCM's architecture as the preferred issuer-sponsored model
✅ Creates barriers for competitors who must restructure to meet Category 1 requirements
✅ Enables institutional participation through regulatory certainty
✅ Positions U.S. markets as global leaders in compliant securities tokenization
✅ Protects investors through clear classification and oversight

🎯 Final Statement

OTCM Protocol demonstrates that permanent infrastructure can be built within existing securities law frameworks. By combining SEC-registered transfer agent custody, direct issuer authorization, 1:1 verifiable equity backing, and mathematically-enforced compliance controls, OTCM creates markets that cannot fail because they operate within—not outside—the regulatory framework the Commission has established.

The policy implications are significant: Category 1 compliant tokenization represents the continuation of investor protection principles the SEC has championed for decades, adapted to serve markets that traditional infrastructure has abandoned. These are not competing objectives—they are complementary achievements enabled by the Commission's January 28, 2026 framework.

OTCM Protocol stands ready to:

📋 Provide additional documentation of Category 1 compliance
🔧 Offer technical demonstrations of Transfer Hook security controls
🤝 Support Commission staff in understanding our architecture
📊 Share data on market impact and investor protection outcomes

🏛️ We believe the SEC's Category 1 framework positions the United States as the global leader in compliant securities tokenization. OTCM Protocol is honored to demonstrate that framework in action—creating permanent, investor-protected markets for the millions of shareholders that traditional finance has abandoned.

Respectfully submitted,

Groovy Company, Inc. dba OTCM Protocol A Wyoming Digital Asset Corporation

Aligned with SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026

ST22 Tokenized Securities are securities under federal securities laws. This submission is for informational purposes and does not constitute an offer to sell or solicitation of an offer to buy any securities.

📚 References

⚖️ Primary Regulatory Authority

U.S. Securities and Exchange Commission, Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets, Joint Statement on Tokenized Securities (January 28, 2026). https://www.sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826
Establishes the Category 1 (Issuer-Sponsored) vs. Category 2 (Third-Party) taxonomy for tokenized securities. Confirms that issuer-authorized tokenization with regulated custody represents the favored regulatory pathway. Affirms technology-neutral principle: "The format in which a security is issued or the methods by which holders are recorded does not affect application of the federal securities laws."

📋 SEC Guidance & Frameworks

U.S. Securities and Exchange Commission, Framework for "Investment Contract" Analysis of Digital Assets (April 2019). https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets
Provides analytical framework for determining whether digital assets constitute securities under the Howey test.
U.S. Securities and Exchange Commission, Staff Statement on Meme Coins (February 2025). https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins
Clarifies that tokens serving "entertainment and cultural purposes" with community-driven pricing may not constitute securities. Note: This guidance applies to the OTCM Utility Token, not to ST22 Tokenized Securities which are backed by real equity and classified as securities.
SEC.gov, Press Release: SEC Announces Crypto Task Force (January 2025). https://www.sec.gov/newsroom/press-releases/2025-30
Establishes the SEC Crypto Task Force to provide regulatory clarity for digital asset markets.
SEC Unified Agenda, Transfer Agent Rulemaking (Target: Early 2026). https://www.reginfo.gov/public/do/eAgendaMain
SEC priority rulemaking that may provide additional clarity for transfer agent custody arrangements in tokenized securities.

🏛️ OTCM Protocol Submissions

OTCM Protocol, Inc., Written Submission to SEC Crypto Task Force (August 30, 2025). https://www.sec.gov/about/crypto-task-force/written-submission/ctf-written-input-otc-meme-corp-083025
Original submission describing OTCM's tokenization architecture, subsequently updated to reflect Category 1 compliance following the January 28, 2026 guidance.

📊 Market Data & Industry Sources

OTC Markets Group, Market Data and Company Information. https://www.otcmarkets.com
Source for OTC market statistics, including 11,000+ traded companies and market tier classifications (OTCQX, OTCQB, Pink, Grey Market).
Chainalysis, Crypto Crime Report: Meme Token Fraud Analysis (2024-2025). https://www.chainalysis.com/blog/crypto-crime-report
Documents scale of fraud in unregulated token markets, providing context for OTCM's investor protection mechanisms.

🏦 Infrastructure Partners

Empire Stock Transfer, SEC-Registered Transfer Agent. https://www.empirestock.com
OTCM's qualified custodian partner providing SEC-registered transfer agent services for Series M preferred share custody.

⚙️ Technical Standards

Solana Foundation, SPL Token-2022 Standard with Transfer Hook Extensions. https://spl.solana.com/token-2022
Technical specification for the token standard enabling OTCM's 42 programmable compliance controls through Transfer Hook extensions.

📖 Additional Reading

Category 1 Compliance Documentation

Document	Description
📜 OTCM Whitepaper	Technical architecture and tokenization process
📋 Series M Certificate of Designation	Template for issuer-authorized preferred share creation
🏦 Empire Stock Transfer Custody Agreement	SEC-registered custodian arrangement
⚙️ Transfer Hook Technical Specification	42 security control implementation details
🛡️ Protective Conversion Trigger Documentation	Investor protection mechanisms

SEC Category 1 Requirements Reference

Requirement	OTCM Documentation
✅ Direct issuer authorization	Board Resolution Template
✅ Official shareholder register	Certificate of Designation Filing Guide
✅ Regulated custody	Empire Stock Transfer Agreement
✅ True equity backing	Oracle Verification System Specification
✅ Clear ownership chain	CUSIP Assignment Process
✅ Investor protection mechanisms	Transfer Hook Security Controls Documentation
✅ Token standard compliance	SPL Token-2022 Implementation Guide

⚖️ Note: The January 28, 2026 SEC Joint Statement on Tokenized Securities is the primary regulatory authority for OTCM Protocol's Category 1 compliance framework. All OTCM documentation has been updated to reflect alignment with this guidance.

References current as of January 29, 2026

📅 Last Updated: January 2026

🔒 CONFIDENTIAL — For Internal Strategic Use Only

📄 Compiled for OTCM Protocol Investor Communications