AI & Machine Learning

Web3 Development

NFT & Metaverse

Blockchain Development

Blockchain Solutions

Products

Get in Touch
arrow-left Back to ‘Today at Nextrope Blog’

The Role of ERC-3643 in Real World Assets (RWA) Tokenization

Miłosz

12 Jan 2024
The Role of ERC-3643 in Real World Assets (RWA) Tokenization

Historically, the conversion of assets from physical to digital formats has been fraught with regulatory ambiguities and burdensome accessibility for micro-investors. Until recently, technological limitations and a lack of operational legal clarity have hindered the effectiveness of tokenization. The development of ERC-3643 represents a complex yet essential endeavor, traversing practices array while maintaining strict mandates across jurisdictions. Overcoming these barriers seems to have been the driving force behind the creators from the start. Thereupon, we invite you to acquire an impact of ERC-3643 on the RWA tokenization with us!

Table of Contents

Redefining RWA Tokenization with ERC-3643

Source: ERC-3643 Association

Diversification: The ERC-3643 standard assigns on-chain representation of broad resources ointment. This involves issuing digital tokens that stand as physical product quantity, value, and profit shares.

Exposure: A fractional ownership feature embedded into the token lowers an entry barrier while supplying more liquidity into the market and attracting less affluent individuals.

Transfer: The process of rights ownership and transfers has been formed into a permission-need framework.

Innovation: ERC-3643 tokens can be structured in the form of a basket of commodities, involving different market segments. Additionally, the protocol enables the creation of commodity-backed stablecoins, providing a lower-risk investment option.

Regulatory Versatility: Programmable token functions, multi-layered access controls, compliance checks, automated reporting, and other security mechanisms - these all prioritize alignment with both current and future regulations.

Find out the RWA definition & examples - we've it covered extensively here!

Read more!

Integration of ERC-3643 into Global Supply Chains

Traceability: By tokenizing single products or batches, companies can track the journey of items in real time, from manufacturing to delivery. Undoubtedly, this level of validation is crucial for preventing counterfeits and ensuring item quality. 

Automation: ERC-3643 optimizes many supply chain processes including settlements and legal compliance checks. It reduces the need for intermediaries and cuts down project operational costs. Also, minimizes the risk of human error.

Storage Management: A more accurate and real-time view of inventory levels. Tokenization makes it easier to track stock movements and predict supply needs, leading to reduced wastage.

Cross-Border Orders: ERC-3643 may straightforward international transactions by providing a unified system for shipment tracking. This could help in reducing delays caused by customs checks and documentation.

Consumers' confidence: The legitimacy offered by ERC-3643 builds greater trust in brands, in particular, where authenticity and ethical sourcing are paramount.

Integration with IoT and AI: IoT devices can feed real-time data into the blockchain network, so AI analyzes these, which eventually leads to more informed decision-making. 

Security: ERC-3643 token metadata is protected against tampering and unauthorized access, especially due to advanced permissions and restriction features.

ERC-3643 and the World of Art

Revenue Streams: Artists, by selling divided, more affordable fractions of their compositions, generate income while retaining a portion of their creative capital. In regards, enthusiasts who were previously priced out of the market are now fully entitled to participate in this highly valued sector.

Authenticity: One of the perennial industry challenges was to maintain artwork's provenance and genuineness. ERC-3643 embeds more detailed information into the token. This blockchain-based approach ensures a tamper-proof record and appropriate infrastructure for copyright management.

Art Curations: ERC-3643 facilitates innovative exhibition possibilities. Galleries and museums, acting as halls of art, could tokenize or create virtual collections, meanwhile, spreading creator contributions to a global audience.

ERC-3643 Transforms Intangible Assets Offerings

Democratization: ERC-3643 enables the tokenization of IP and patents, also partial, so that inventors monetize licensing or commercialization of the rights in the form of tokens.

Distribution: Smart contracts can be programmed to automatically grant licenses and distribute royalties to token holders whenever the IP is used commercially. This reduces administrative overhead and ensures fair and timely payments to rights holders.

Auditability: ERC-3643 provides unparalleled simplicity in intellectual property trading. It also concerns applications, approvals, and transfers of patents. Immutable transaction statements with protocol security measures prevent disputes over rights ownership and utilization.

Collaboration: The standard facilitates new forms of joint ventures in IP development. Multiple parties can hold stakes in a paten, sharing risks, rewards more equitably, and so on. Spur innovations and continuous refinements motivate ERC-3643 principles then.

AI and ERC-3643 Join Together

Tokenization: Artificial Intelligence raises huge concerns about the authenticity and origin of content. The potential for misuse, such as deepfakes or falsified data, poses risks to publicly accessible information and makes the verification more essential than ever. ERC-3643 standard introduced by Tokeny, leverages a framework that can be instrumental in the AI-generated matter distribution. Blockchain technology's inherent characteristics ensure every piece is traceable back to its source, distinguishing between genuine creations and violent disinformation. Tokenization of AI content via ERC-3643 involves assigning a unique digital token, acting as a digital certificate. Each one contains metadata e.g. creation date, provenance, and any modifications made. ERC-3643's smart contract capabilities can also be programmed in a way acknowledging that specific criteria have been met before proliferation.

Fox Corporation, a mass media production & distribution company, has recently unveiled a prototype of a new open-source protocol named Verify, which is developed on the Polygon network. Publishers register their content and ensure provenance, securely marking each piece with a cryptographic signature. Since ERC3643 tailors mostly for permission-needed transfers, restricted access features, and programmable token lifecycle management rules, its implementation might refine such tools' performance shortly.

Source: Polygon Technology

Symbiosis: Various issues around intellectual property rights management, and data privacy must be carefully considered. ERC-3643 provides a starting point for proposing a legal-adherent tokenization process. Looking ahead, it could become a standard tool for the reliable distribution of trusted and valued sources.

Unraveling the Potential of Tokenized Infrastructure Projects

Accessibility: Generally, infrastructure projects like bridges, highways, or renewable energy have been the domain of institutional investors or government entities due to the substantial capital requirements. ERC-3643 expands these investment opportunities permitting small-scale fractional investment in similar, lucrative initiatives.

Flexibility: Described rather as long-term investments, these projects characterize limited liquidity. Potential secondary markets, introduced through tokenization, could encourage retail investors to consider entering the market despite legacy large-cap requirements. 

Management: A decentralized ledger helps monitor progress, fund allocation, and project profitability.

Financing: Raising capital for infrastructure projects is often a cumbersome and expensive process. ERC-3643 offers wider access to a pool of investors through token sales breaking geographical boundaries and allowing for quicker venture initiation.

Revenue Models: ERC3643 allocates shared yields based on the project income generation and the token ratio owned by the investor, similar to energy sales in solar farms. This model concentrates investor returns and operation success, creating a mutually beneficial scenario.

Cross-jurisdictional Compliance: Given the heavily regulated nature of infrastructure projects, the legal adherence-oriented design of the standard is a key advantage. It ensures contribution to local and international frameworks concerning investments, ownership, and revenue distribution.

Healthcare Enhancements through ERC-3643 Implementation

Research Funding: ERC-3643 facilitates securing funds for medical research and development, thanks to tokenized bonds or tokens issued by clinical examination sponsors.

Facilities: Systematic improvements to the healthcare ecosystem can be accomplished by tokenizing medical equipment or entire centers using the T-REX protocol. 

Data management: Personal data, medical case records, and other sensitive information, in the age of increasing digitization, could be also stored on the blockchain. Ethical aspects of their usage must be always obeyed. Relatedly, the ERC3643 smart contract, upon acquiring patient consent, would provide authorized access and seamless interaction between particular healthcare providers.

Regulations: The compliance-centric architecture of ERC-3643 targets legal integrity while respecting existing personal data processing practices. 

Conclusion

The implementation of ERC3643, as we've seen, extends far beyond the traditional financial instruments. The standard offers a blueprint for tokenizing assets that were once considered challenging.  The capability of ERC3643 to ensure regulatory adherence, coupled with its flexibility and scalability, marks it as an indispensable tool in modern asset management where the boundaries of asset ownership, accessibility, transfer, and utilization are being respected.

If you are interested in utilizing ERC-3643 or other blockchain-based solutions for your project, please reach out to contact@nextrope.com

How does ERC-3643 impact supply chains and art world?

  • ERC-3643 enhances supply chain traceability, automates processes, boosts consumer confidence, and enables fractional ownership in the art world, ensuring authenticity and provenance verification.

What benefits does ERC-3643 offer for intellectual property and infrastructure projects?

  • ERC-3643 facilitates IP tokenization, simplifies revenue distribution, and fosters collaboration. In infrastructure, it broadens investment opportunities, improves project management, and ensures regulatory compliance.

How does ERC-3643 contribute to healthcare and AI integration?

  • ERC-3643 secures funding for medical research, enhances facility management, and ensures data security in healthcare. It also aids AI content verification, ensuring authenticity and origin tracking.

Why is ERC-3643 significant for asset management?

  • ERC-3643 ensures regulatory compliance, offers flexibility and scalability, and provides a framework for tokenizing challenging assets, making it essential in modern asset management.

Tagi

Most viewed

Never miss a story

Stay updated about Nextrope news as it happens.

You are subscribed

Aethir Tokenomics – Case Study

Kajetan Olas

22 Nov 2024
Aethir Tokenomics – Case Study

Authors of the contents are not affiliated to the reviewed project in any way and none of the information presented should be taken as financial advice.

In this article we analyze tokenomics of Aethir - a project providing on-demand cloud compute resources for the AI, Gaming, and virtualized compute sectors.
Aethir aims to aggregate enterprise-grade GPUs from multiple providers into a DePIN (Decentralized Physical Infrastructure Network). Its competitive edge comes from utlizing the GPUs for very specific use-cases, such as low-latency rendering for online games.
Due to decentralized nature of its infrastructure Aethir can meet the demands of online-gaming in any region. This is especially important for some gamer-abundant regions in Asia with underdeveloped cloud infrastructure that causes high latency ("lags").
We will analyze Aethir's tokenomics, give our opinion on what was done well, and provide specific recommendations on how to improve it.

Evaluation Summary

Aethir Tokenomics Structure

The total supply of ATH tokens is capped at 42 billion ATH. This fixed cap provides a predictable supply environment, and the complete emissions schedule is listed here. As of November 2024 there are approximately 5.2 Billion ATH in circulation. In a year from now (November 2025), the circulating supply will almost triple, and will amount to approximately 15 Billion ATH. By November 2028, today's circulating supply will be diluted by around 86%.

From an investor standpoint the rational decision would be to stake their tokens and hope for rewards that will balance the inflation. Currently the estimated APR for 3-year staking is 195% and for 4-year staking APR is 261%. The rewards are paid out weekly. Furthermore, stakers can expect to get additional rewards from partnered AI projects.

Staking Incentives

Rewards are calculated based on the staking duration and staked amount. These factors are equally important and they linearly influence weekly rewards. This means that someone who stakes 100 ATH for 2 weeks will have the same weekly rewards as someone who stakes 200 ATH for 1 week. This mechanism greatly emphasizes long-term holding. That's because holding a token makes sense only if you go for long-term staking. E.g. a whale staking $200k with 1 week lockup. will have the same weekly rewards as person staking $1k with 4 year lockup. Furthermore the ATH staking rewards are fixed and divided among stakers. Therefore Increase of user base is likely to come with decrease in rewards.
We believe the main weak-point of Aethirs staking is the lack of equivalency between rewards paid out to the users and value generated for the protocol as a result of staking.

Token Distribution

The token distribution of $ATH is well designed and comes with long vesting time-frames. 18-month cliff and 36-moths subsequent linear vesting is applied to team's allocation. This is higher than industry standard and is a sign of long-term commitment.

  • Checkers and Compute Providers: 50%
  • Ecosystem: 15%
  • Team: 12.5%
  • Investors: 11.5%
  • Airdrop: 6%
  • Advisors: 5%

Aethir's airdrop is divided into 3 phases to ensure that only loyal users get rewarded. This mechanism is very-well thought and we rate it highly. It fosters high community engagement within the first months of the project and sets the ground for potentially giving more-control to the DAO.

Governance and Community-Led Development

Aethir’s governance model promotes community-led decision-making in a very practical way. Instead of rushing with creation of a DAO for PR and marketing purposes Aethir is trying to make it the right way. They support projects building on their infrastructure and regularly share updates with their community in the most professional manner.

We believe Aethir would benefit from implementing reputation boosted voting. An example of such system is described here. The core assumption is to abandon the simplistic: 1 token = 1 vote and go towards: Votes = tokens * reputation_based_multiplication_factor.

In the attached example, reputation_based_multiplication_factor rises exponentially with the number of standard deviations above norm, with regard to user's rating. For compute compute providers at Aethir, user's rating could be replaced by provider's uptime.

Perspectives for the future

While it's important to analyze aspects such as supply-side tokenomics, or governance, we must keep in mind that 95% of project's success depends on demand-side. In this regard the outlook for Aethir may be very bright. The project declares $36M annual reccuring revenue. Revenue like this is very rare in the web3 space. Many projects are not able to generate any revenue after succesfull ICO event, due to lack fo product-market-fit.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.

Tagi

Quadratic Voting in Web3

Kajetan Olas

04 Dec 2024
Quadratic Voting in Web3

Decentralized systems are reshaping how we interact, conduct transactions, and govern online communities. As Web3 continues to advance, the necessity for effective and fair voting mechanisms becomes apparent. Traditional voting systems, such as the one-token-one-vote model, often fall short in capturing the intensity of individual preferences, which can result in centralization. Quadratic Voting (QV) addresses this challenge by enabling individuals to express not only their choices but also the strength of their preferences.

Table of Contents

In QV, voters are allocated a budget of credits that they can spend to cast votes on various issues. The cost of casting multiple votes on a single issue increases quadratically, meaning that each additional vote costs more than the last. This system allows for a more precise expression of preferences, as individuals can invest more heavily in issues they care deeply about while conserving credits on matters of lesser importance.

Understanding Quadratic Voting

Quadratic Voting (QV) is a voting system designed to capture not only the choices of individuals but also the strength of their preferences. In most DAO voting mechanisms, each person typically has one vote per token, which limits the ability to express how strongly they feel about a particular matter. Furthermore, QV limits the power of whales and founding team who typically have large token allocations. These problems are adressed by making the cost of each additional vote increase quadratically.

In QV, each voter is given a budget of credits or tokens that they can spend to cast votes on various issues. The key principle is that the cost to cast n votes on a single issue is proportional to the square of n. This quadratic cost function ensures that while voters can express stronger preferences, doing so requires a disproportionately higher expenditure of their voting credits. This mechanism discourages voters from concentrating all their influence on a single issue unless they feel very strongly about it. In the context of DAOs, it means that large holders will have a hard-time pushing through with a proposal if they'll try to do it on their own.

Practical Example

Consider a voter who has been allocated 25 voting credits to spend on several proposals. The voter has varying degrees of interest in three proposals: Proposal A, Proposal B, and Proposal C.

  • Proposal A: High interest.
  • Proposal B: Moderate interest.
  • Proposal C: Low interest.

The voter might allocate their credits as follows:

Proposal A:

  • Votes cast: 3
  • Cost: 9 delegated tokens

Proposal B:

  • Votes cast: 2
  • Cost: 4 delegated tokens

Proposal C:

  • Votes cast: 1
  • Cost: 1 delegated token

Total delegated tokens: 14
Remaining tokens: 11

With the remaining tokens, the voter can choose to allocate additional votes to the proposals based on their preferences or save for future proposals. If they feel particularly strong about Proposal A, they might decide to cast one more vote:

Additional vote on Proposal A:

  • New total votes: 4
  • New cost: 16 delegated tokens
  • Additional cost: 16−9 = 7 delegated tokens

Updated total delegated tokens: 14+7 = 21

Updated remaining tokens: 25−21 = 425 - 21 = 4

This additional vote on Proposal A costs 7 credits, significantly more than the previous vote, illustrating how the quadratic cost discourages excessive influence on a single issue without strong conviction.

Benefits of Implementing Quadratic Voting

Key Characteristics of the Quadratic Cost Function

  • Marginal Cost Increases Linearly: The marginal cost of each additional vote increases linearly. The cost difference between casting n and n−1 votes is 2n−1.
  • Total Cost Increases Quadratically: The total cost to cast multiple votes rises steeply, discouraging voters from concentrating too many votes on a single issue without significant reason.
  • Promotes Egalitarian Voting: Small voters are encouraged to participate, because relatively they have a much higher impact.

Advantages Over Traditional Voting Systems

Quadratic Voting offers several benefits compared to traditional one-person-one-vote systems:

  • Captures Preference Intensity: By allowing voters to express how strongly they feel about an issue, QV leads to outcomes that better reflect the collective welfare.
  • Reduces Majority Domination: The quadratic cost makes it costly for majority groups to overpower minority interests on every issue.
  • Encourages Honest Voting: Voters are incentivized to allocate votes in proportion to their true preferences, reducing manipulation.

By understanding the foundation of Quadratic Voting, stakeholders in Web3 communities can appreciate how this system supports more representative governance.

Conclusion

Quadratic voting is a novel voting system that may be used within DAOs to foster decentralization. The key idea is to make the cost of voting on a certain issue increase quadratically. The leading player that makes use of this mechanism is Optimism. If you're pondering about the design of your DAO, we highly recommend taking a look at their research on quadratic funding.

If you're looking to create a robust governance model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure that your DAO will stand out as a beacon of innovation and resilience in the long term.

Tagi