ERC-3643: The Token Standard for Regulated Real-World Asset (RWA) Tokenization

ERC-3643, also known as theT-REX Protocol(Token for Regulated Exchanges), is an Ethereum-based token standard designed specifically for the tokenization of real-world assets (RWAs). It introduces permissioned tokens that embed compliance, identity verification, and transfer restrictions directly into the token’s smart contract, making it ideal for regulated assets like securities, real estate, and private funds.

Key Features of ERC-3643

1. Permissioned Tokens:

   • Unlike ERC-20 tokens, which can be freely transferred, ERC-3643 tokens are permissioned. This means only verified participants can hold or transfer these tokens.

   • Transfers are governed by compliance rules embedded in the token’s smart contract, ensuring adherence to regulations like KYC (Know Your Customer) and AML (Anti-Money Laundering).

2. On-Chain Identity Management (ONCHAINID):

   • ERC-3643 uses ONCHAINID, a decentralized identity framework, to link token holders to verified identities.

   • Each user’s identity is validated by authorized parties and stored on-chain, ensuring that only eligible participants can interact with the token.

   • ONCHAINID is reusable across multiple tokens and applications, reducing redundancy.

3. Compliance by Design:

   • Compliance rules are enforced at the token level, ensuring that all transactions meet regulatory requirements.

   • Transfers are only executed if both the sender and receiver meet pre-defined conditions, such as jurisdictional restrictions or investor accreditation.

4. Enhanced Security and Recovery:

   • ERC-3643 includes mechanisms for token recovery in case of lost private keys, ensuring security for token holders.

   • Token issuers or their agents can pause or freeze tokens in response to regulatory changes or compliance breaches.

5. Interoperability:

   • Despite its enhanced compliance features, ERC-3643 maintains compatibility with existing ERC-20 infrastructure, such as wallets, custodians, and exchanges.

6. Modular Compliance:

   • Issuers can define and update compliance rules dynamically, allowing the token to adapt to evolving regulations.

How ERC-3643 Works

1. Identity Verification:

   • Users undergo KYC/AML checks through authorized validators.

   • Once verified, their wallet address is linked to an on-chain identity via ONCHAINID.

2. Token Issuance:

   • Issuers create ERC-3643 tokens and define compliance rules, such as investor eligibility, geographic restrictions, and transfer conditions.

3. Transaction Validation:

   • Before a token transfer is executed, the system checks if both the sender and receiver meet the compliance criteria.

   • If the criteria are met, the transfer is approved; otherwise, it is denied.

4. Ongoing Compliance:

   • Issuers or agents can update compliance rules, revoke access, or freeze tokens as needed to maintain regulatory adherence.

Use Cases of ERC-3643

1. Finance:

   • Tokenized securities, private equity, and bonds can be issued and traded with built-in compliance, ensuring only eligible investors participate.

2. Real Estate:

   • Fractional ownership of real estate can be tokenized, with identity verification ensuring compliance with jurisdictional and investor requirements.

3. Art and Collectibles:

   • High-value items like fine art or rare collectibles can be tokenized and sold to verified buyers, with ownership history stored immutably on-chain.

4. Carbon Credits:

   • Environmental assets like carbon offsets can be issued as permissioned tokens, ensuring legitimacy and preventing fraud.

5. Gaming and Loyalty Programs:

   • In-game assets or digital loyalty points can be tokenized with transfer restrictions, ensuring they remain under the control of the issuer.

Benefits of ERC-3643

1. Regulatory Compliance:

   • Ensures all transactions meet legal and regulatory requirements, making it suitable for tokenizing regulated assets.

2. Security and Transparency:

   • Immutable on-chain records provide transparency, while identity-linked access controls reduce the risk of fraud or illicit activity.

3. Global Accessibility:

   • Enables cross-border trading of tokenized assets while maintaining compliance with local regulations.

4. Flexibility:

   • Compliance rules can be tailored to specific jurisdictions or asset types, making ERC-3643 adaptable to various industries.

5. Interoperability:

   • Compatible with existing Ethereum infrastructure, allowing seamless integration with wallets, exchanges, and DeFi protocols.

Comparison: ERC-3643 vs. ERC-20 and ERC-1400