The ERC-3643 standard, introduced as a permissioned token standard, is specifically designed for the tokenization of real-world assets, such as security tokens. Permissioned tokens are a feature of permissioned blockchains, which are distributed ledgers that are not publicly accessible and can only be accessed by users with specific permissions. Unlike permissionless blockchains, permissioned blockchains require identity verification and have a controlled level of transparency based on the goals of participating organizations.
It is built on the Ethereum blockchain and is intended to ensure compliance with regulatory requirements, particularly in the context of security token offerings (STOs). The standard is designed to enforce compliance at the token level, allowing only compliant transactions to be executed. This is done by utilizing multiple verification methods such as conditionally implemented functions, counterparty verification and on-chain verification.
The motivation behind the creation of ERC-3643 is to address the need for a permissioned token standard that is specifically tailored for the tokenization of real-world assets, particularly security tokens. The standard is designed to ensure compliance with existing securities laws within a jurisdiction and to provide a secure and efficient environment for managing security tokens.
ERC-3643 works by incorporating a decentralized validation system, which includes an on-chain identity management system (ONCHAINID) and a set of compliance rules. When a transfer of ERC-3643 tokens is initiated, the decentralized validator engages to perform compliance and eligibility checks. If the transfer meets the compliance requirements, the tokens are allowed to be transferred; otherwise, the transfer is rejected.
The ONCHAINID contract represents a smart contract initiated by a user for engaging with a security token or any application where an on-chain identity holds significance. Built upon the ERC-734 and ERC-735 standards, this contract serves as a repository for keys and claims linked to a specific identity, offering all the necessary functions for efficient management.
Unlike being bound to a particular token, the ONCHAINID contract only requires deployment once by each user. Subsequently, it becomes versatile, applicable in various scenarios where an on-chain identity proves advantageous. Additionally, the ONCHAINID contract is deployed and linked to the token smart contract, representing the identity of the financial asset itself.
ERC-3643 permissioned tokens are an extension of the ERC-20 standard, incorporating additional functionalities to ensure compliance in the handling of security token transactions. Within this framework, the transfer and transferFrom functions are conditionally implemented, allowing the execution of transfers only when transactions meet specific validity criteria.
These permissioned tokens are designed to be transferred solely to verified counterparties, preventing holdings in wallets or identity contracts of ineligible or unauthorized investors. Moreover, the ERC-3643 standard includes provisions for the recovery of security tokens in instances where an investor loses access to their wallet private key, and a transparent record of recovered tokens is maintained on the blockchain.
To facilitate effective security management, ERC-3643 tokens introduce a suite of additional functions empowering the owner or their designated agents to oversee supply, transfer rules, lockups, and other essential aspects of security management. The standard relies on ERC-173 to establish contract ownership, with the owner being responsible for appointing agents. Any contract assuming the role of a Token contract within the context of this standard must align with the IAgentRole interface for compatibility. This ensures seamless integration and adherence to the stipulated standards for efficient security token management.
The key functions of ERC-3643 tokens include the conditional nature of the transfer function, which requires approval from the decentralized validator based on specific governance criteria defined for the token. Additionally, the standard supports modular compliance, allowing issuers to define and enforce compliance rules for their tokens.
The primary use case of ERC-3643 is the tokenization of real-world assets, particularly security tokens. It is designed to be suitable for both peer-to-peer transfers and trading on regulated platforms, ensuring that all transactions comply with the specified regulatory requirements.
The ERC-3643 standard ensures compliance with regulatory requirements through various mechanisms, including denial of transactions or actions if counterparties fail to meet compliance requirements, digital identity verification, and permissioned token features. Here are the key ways in which ERC-3643 ensures compliance:
ERC-3643 is designed to deny transactions or actions if counterparties fail to meet compliance requirements. This is achieved by embedding compliance rules at a token level, ensuring that only compliant transactions are executed.
The standard uses digital identity to whitelist users through verifiable credentials, ensuring that the compliance validation process is entirely on-chain while protecting privacy. This means that only users meeting predefined conditions can become token holders, even on permissionless blockchains.
ERC-3643 is a permissioned token standard that uses smart contract technology to define conditional transfer functions, enabling compliance structures for regulated assets like securities while retaining the standard of ERC-20 functionality. It supports additional features such as token pausing and freezing, which can be used to manage the token in response to regulatory requirements or changes in the status of the token or its holders.
The standard dynamically verifies user eligibility through a self-sovereign identity (SSI) framework, ensuring compliance via anonymous but verifiable credentials. This empowers token issuers with continuous control over tokens, facilitating governance and adherence to regulatory requirements.
The document highlights the differences between ERC-3643 and the existing ERC-20 and ERC-721 standards. Unlike ERC-20, ERC-3643 is a permissioned token standard, and it enforces compliance at the token level. It also maintains compatibility with ERC-20 based exchanges and tools. In comparison to ERC-721, ERC-3643 is specifically focused on the tokenization of regulated real-world assets, whereas ERC-721 is more generalized for non-fungible tokens.
The advantages of ERC-3643 include its ability to ensure compliance with regulatory requirements, its support for modular compliance, and its compatibility with existing ERC-20 based infrastructure. It also provides a secure and transparent environment for managing security tokens.
The document does not explicitly mention any disadvantages of the ERC-3643 standard. However, it is important to note that the implementation of compliance features may introduce additional complexity and potential challenges in terms of governance and maintenance.
The compliance interface of ERC-3643 is based on a decentralized validation system, which includes the ONCHAINID as a blockchain-based identity management system. ONCHAINID allows for the creation of globally accessible identities for all stakeholders and is used to link wallet addresses to identities via validation certificates issued by trusted third parties.
The ERC-3643 standard, also known as the T-REX (Token for Regulated Exchanges) standard, is a modification of ERC-20. It is designed to bring compliance to the tokenization of real-world assets (RWA) and is a permissioned token that uses smart contract technology to define conditional transfer functions. Unlike the ERC-20 token, ERC-3643 is designed to deny transactions or actions if counterparties fail to meet compliance requirements. It enables compliance structures that can be used for regulated assets, like securities, while retaining the standard of ERC-20 functionality.
The standard also supports additional features such as token pausing and freezing, which can be used to manage the token in response to regulatory requirements or changes in the status of the token or its holders. ERC-3643 ensures interoperability with any ERC-20-supporting applications and uses digital identity to whitelist users through verifiable credentials. The standard is being developed to enable DeFi protocols to run checks in compliance with its requirements, and a new UI plug-in tool has been revealed to facilitate this. The ERC-3643 standard is motivated by the need to provide a comprehensive framework for managing the lifecycle of security tokens, from issuance to transfers between eligible investors, while enforcing compliance rules at every stage.