The new Ethereum standard ERC-3643 has been officially adopted by the Ethereum community as the protocol for creating and managing security tokens. These are a way of tokenizing real-world assets, that is, converting them into digital units that can be issued, transferred and verified on the blockchain. In this way, access, liquidity and efficiency of capital markets are facilitated, while costs and intermediaries are reduced.

However, tokenizing real-world assets is not as simple as tokenizing cryptocurrencies or other utility tokens. Security tokens must comply with regulations in each jurisdiction, which involves verifying the identity and eligibility of investors, as well as applying specific compliance rules for each token. This is where the Ethereum ERC-3643 standard comes into play, providing a series of interfaces for controlling the identity, eligibility and compliance of investors who hold or transfer these tokens. The standard also allows for additional features such as pausing and freezing tokens, which can be useful in responding to regulatory requirements or changes.

ERC-3643 is based on Ethereum's on-chain identity system, which allows investors' identities and credentials to be validated through signed attestations issued by trusted claim issuers. The standard defines several trust registries that store and manage information about claim issuers, claim topics, and compliance rules.

Permissioned tokens + digital identity

The transfer of ERC3643 tokens can only be triggered when both the investor rules (via ONCHAINID) and offering rules are fulfilled, ensuring compliance at the smart contract level.

Web: https://www.erc3643.org
Protocol: https://github.com/ERC-3643/ERC-3643
Whitepaper: https://assets-global.website-files.com/63d7968e79bf1252d92c981f/64c0f2c72ea4fb62e1c838e6_Whitepaper%20-%20T-REX%20v4%20-%20Security%20tokens.pdf

The ERC-3643 Standard is an important milestone for the field of tokenization, as it opens the door to a new era of innovation and opportunities in the financial sector. With this standard, capital markets players will be able to interact with DeFi and the broader digital asset market in a fully compliant manner. Additionally, it supports a wide range of asset classes, including small businesses, real estate, arts, energy, agriculture, and more. This means that anyone will be able to participate in the real-world economy digitally, democratizing access to and ownership of assets.

Although it is a very advanced and complete standard for the tokenization of real-world assets, it also has some limitations that must be taken into account:

❌ Requires investors to have an identity on the blockchain, which must be validated by trusted claim issuers. This involves a pre-investment verification process, which can be expensive and time-consuming for some investors, especially those unfamiliar with blockchain technology.

❌ It depends on the existence and operation of several trusted registries, which store and manage information about claim issuers, claim topics and compliance rules. These records may be vulnerable to attacks, errors or tampering, which could affect the integrity and security of the tokens.

❌ It is not compatible with all real-world asset types, as some may have specific features or requirements that do not fit the standard. For example, some assets may have voting, dividend, amortization or redemption rights, which are not covered by ERC-3643.

❌ Does not guarantee interoperability with other token standards or blockchain protocols, which may limit options and opportunities for investors and issuers. For example, some tokens may require an additional layer of compatibility to interact with DeFi or other blockchain networks.

Other risks associated with tokenizing real-world assets:

❌ Regulatory: You must comply with the regulations of each jurisdiction, which can be complex and expensive. Additionally, regulations may change or vary depending on the type of asset, market or country. This may affect the validity, security and liquidity of the tokens.

❌ Operations: It depends on blockchain technology, which can be vulnerable to attacks, errors or failures. It also requires interoperability between different networks and infrastructures, which can lead to compatibility or connectivity issues. These factors may compromise the integrity, availability and purpose of the tokens.

❌ Custodial: It involves the transfer of ownership or control of physical assets to an entity that custody and represents them on the blockchain. This can lead to issues of trust, transparency and accountability. Additionally, there may be a lack of correlation between the value of the physical asset and that of the token, which may lead to their overvaluation or undervaluation.

However, the benefits of the ERC-3643 standard for real-world asset tokenization far outweigh its limitations by allowing investors to verify their identity and eligibility using a blockchain identity system, which uses attestations. signed by trusted issuers. In addition, it makes it possible to apply specific compliance rules for each token, as well as pause and freeze functions to respond to regulatory requirements or changes. As I mentioned previously, it is compatible with a wide range of asset classes, including small businesses, real estate, arts, energy, agriculture and more. It also facilitates the issuance, management and transfer of tokens, reducing costs and intermediaries. It is interoperable with other blockchain networks and protocols, allowing investors to access DeFi and the broader digital asset market. Being an open source standard, it encourages collaboration and the development of new solutions and tools, promoting mass adoption of tokenization, democratizing access to and ownership of assets, and creating new investment and financing possibilities.

ERC-3643 is, without a doubt, a revolutionary standard that will change the way real-world assets that would be represented on the blockchain are issued, managed and transferred.

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