Advantages of Using ERC-3643 Contracts vs. ERC-20 for Issuing RWA (Real World Assets) Tokens

Introduction

Blockchain technology has opened up a new range of possibilities for tokenizing real-world assets (RWAs), allowing their digital representation on the blockchain. This process offers numerous advantages, such as fractional ownership, increased liquidity, and reduced intermediaries. However, RWA tokenization also presents challenges, especially in terms of regulatory compliance. In this context, the ERC-3643 token standard emerges as an innovative solution that addresses the limitations of the ERC-20 standard, widely used for issuing fungible tokens.

This report analyzes the advantages of using ERC-3643 contracts compared to ERC-20 for issuing RWA tokens. To do this, the characteristics of both standards will be examined, their functionalities will be compared, and examples of projects that use ERC-3643 will be explored. In addition, a brief description of the research methodology used to prepare this report will be included.

Research Methodology

For the preparation of this report, exhaustive research was carried out that included the following steps:

1. Information gathering: Various sources of information were consulted, including websites specializing in blockchain technology, academic articles, industry reports, and technical documentation.
2. Analysis of standards: The ERC-20 and ERC-3643 token standards were examined in detail, including their technical specifications, functionalities, and use cases.
3. Comparison of characteristics: A comprehensive comparison of the characteristics of both standards was carried out, with special attention to their application in RWA tokenization.
4. Case studies: Projects that use ERC-3643 for RWA tokenization were investigated, analyzing their implementations and results.
5. Analysis of advantages and disadvantages: The advantages and disadvantages of using ERC-3643 compared to ERC-20 for issuing RWA tokens were evaluated.

What are ERC-20 Tokens?

The ERC-20 standard is a set of rules that define how fungible tokens are created and managed on the Ethereum blockchain. These tokens are interchangeable with each other, like fiat currencies, and are used to represent a variety of digital assets, such as cryptocurrencies, utility tokens, and governance tokens.

Some key features of ERC-20 tokens are:

• Fungibility: Each token is identical to another within the same set.
• Transferability: Tokens can be transferred between Ethereum addresses.
• Approval: Users can authorize third parties to spend their tokens.
• Total supply: The total amount of tokens to be issued is defined.

The ERC-20 standard has been fundamental to the growth of the Ethereum ecosystem, facilitating the creation of thousands of different tokens. In fact, it is the most popular standard for creating cryptocurrencies in dedicated smart contracts. However, its limitations in terms of regulatory compliance make it unsuitable for tokenizing RWAs, which are often subject to specific regulations.

What are ERC-3643 Tokens?

The ERC-3643 standard, also known as T-REX (Token for Regulated Exchanges), is an extension of ERC-20 designed for the tokenization of regulated assets. Unlike ERC-20, ERC-3643 incorporates compliance functionalities that allow the creation of tokens that comply with securities laws and other regulations.

The main features of ERC-3643 are:

• Permissioned tokens: Only users who meet certain criteria can own and transfer tokens.
• Conditional transfer functions: Token transfers can be restricted based on predefined rules.
• Digital identity: Digital identity is used to verify the identity of users and ensure compliance.
• On-chain compliance: Compliance validation is performed on the blockchain itself, which increases transparency and security. This means that compliance rules are directly integrated into the token, and the blockchain can automatically verify whether the necessary conditions for a transaction are met.

Advantages of ERC-3643

ERC-3643 offers significant advantages over ERC-20 for issuing RWA tokens:

• Regulatory compliance: ERC-3643 allows the creation of tokens that comply with regulations, which facilitates the tokenization of assets such as securities, real estate, and debt.
• Increased security: Identity verification and conditional transfers increase the security of transactions and reduce the risk of fraud 8. In addition, by requiring the identification of all accounts that carry out transactions, ERC-3643 allows the blockchain to become a verifiable accounting book, which increases security compared to ERC-20.
• Transparency: On-chain compliance provides an auditable record of all transactions, increasing transparency and trust.
• Interoperability: ERC-3643 is compatible with existing ERC-20-based infrastructure, facilitating integration with DeFi applications and platforms.
• Fractional ownership and secondary market: ERC-3643 allows the creation of tokens that represent fractional ownership of RWAs, facilitating access to investment in assets that were previously inaccessible to small investors. In addition, it facilitates the development of secondary markets for these tokens, which increases liquidity.
• Securities lifecycle management: ERC-3643 provides more than 120 functions to control and automate post-issuance operations, such as blocking or recovering tokens. This allows issuers to comply with their regulatory obligations and manage the securities lifecycle efficiently.
• Increased confidence for institutional investors: ERC-3643 allows the application of predefined rules for the use of assets and governance rights, which increases confidence and transparency for institutional investors.
• Standardization: ERC-3643 addresses the standardization challenges that previously hindered the entry of RWAs into the blockchain space, facilitating greater adoption.

Disadvantages of ERC-3643

However, ERC-3643 also has some disadvantages:

• Increased complexity: Implementing ERC-3643 is more complex than ERC-20, which may require more technical expertise and resources.
• Costs: Increased complexity can result in higher development and implementation costs.

Examples of Projects Using ERC-3643

• Metro Futuro: DApps Factory has developed a platform for the purchase and sale of tokens linked to real estate using ERC-3643.
• Pivot: DApps Factory has developed a platform for the purchase and sale of tokens linked to real estate using ERC-3643 14.Aspen Digital Inc.: Has tokenized ownership of the St. Regis Aspen Resort in Colorado.
• Mazer Gaming: Has tokenized its gaming software and intellectual property.
• Lithium Royalty Corp.: Has tokenized its royalties in lithium mining projects.
• ERC3643 Onchain Factory: This tool allows issuers to deploy and configure ERC-3643 tokens efficiently in a single transaction, simplifying the issuance process.

Conclusion

The ERC-3643 standard represents a significant advance in RWA tokenization, offering greater security, transparency, and regulatory compliance compared to ERC-20. While its implementation is more complex and can result in higher costs, the advantages it offers make it an attractive option for projects seeking to tokenize regulated assets.

The ability of ERC-3643 to integrate regulatory compliance into the very structure of the token, along with its advanced identity management and conditional transfer functionalities, position it as a key standard to drive the adoption of RWA tokenization. By facilitating investment in fractional assets and the development of secondary markets, ERC-3643 opens up new possibilities for the democratization of investments and the creation of a more efficient and inclusive financial ecosystem.

As RWA tokenization continues to grow and regulations become stricter, ERC-3643 is likely to become the dominant standard for issuing tokens that represent real-world assets. Its ability to address the specific needs of RWAs, such as securities lifecycle management and ownership assurance, make it a fundamental tool for the future of decentralized finance.

Fuentes citadas

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