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ERC-3643 Standard for RWA Tokenization

ERC-3643 Standard for RWA Tokenization

The approval of the first standard focused on RWA tokenization or Real World Assets (RWA) tokenization on Ethereum, the ERC-3643, is here.

This new protocol, people know as the T-REX has generated great expectations in the Ethereum community. The company Tokeny led the team behind the development. People know them for developing RWA tokenization solutions for companies and financial institutions. This company has put a lot of effort into making ERC-3643 a reality.

Thus, the main goal of the T-REX Protocol is to address the interoperability and security challenges faced by dApps on the Ethereum network, especially those focused on RWA tokenization. To this end, the T-REX Protocol, detailed in ERC-3643, will define the development framework for communication between smart contracts and facilitate interaction between different dApps dedicated to the RWA sector.

RWA tokenization with ERC-3643: How does it work?

The T-REX Protocol focuses on security and efficiency. To this end, the developers have decided to use a highly secure transaction validation mechanism, which reduces the risk of malicious attacks and vulnerabilities, making it possible because a granular permission system is employed to control the issuance and transfer of tokens.

A decentralized sovereign identification system, self-sufficient identity (SSI), controls the access. This system allows users to verify their identity anonymously and verifiably, in addition to dividing permissions for access, use, and management of tokens.

Security and regulatory compliance

However, the security and token management process also adds a layer of security and trust. These layers are designed for regulatory compliance when issuing and managing these digital assets. Recall that the T-REX Protocol focuses on RWA tokenization or tokenization of Real World Assets (RWA) (e.g., shares of a company, a house, an apartment building, among others), so the protocol must be able to maintain a series of functions and permissions that help regulators to audit and control the performance of such assets.

Thus, when issuing an ERC-3643 token, we’ll see the creation of a Smart Contract that defines the token’s properties. This smart contract must be approved by a regulatory body or by an authorized issuer of the sector to which the tokenized real asset belongs, as well as the companies and individuals involved in the process.

Modular, extensible, and efficient design

Once the system approves the Smart Contract, the users can issue tokens by transferring real-world assets to the smart contract. The transfer of assets is authentic through an SSI system. Users can only transfer ERC-3643 tokens if they meet the requirements set by the token issuer. These requirements may include restrictions on the identity of the user, the number of transferred tokens, and token usage.

Easier integrations

Another relevant point in the operation of ERC-3643 is that it defines several functions that allow for tremendous modularity and extensibility. Developers designed the standard to enable developers to connect new pieces to the main contract and thus enable easier integration with other Ethereum solutions and standards, fostering interoperability between different dApps.

The protocol also introduces significant improvements in transaction efficiency, bringing lower costs and processing times for dApps users. Efficiency contributes to a more seamless and engaging user experience, which could boost the adoption of dApps.

RWA tokenization and ERC-3643: impact on the industry

The ERC-3643 standard has the potential to revolutionize the development of dApps on Ethereum in several ways:

Interoperability: By establishing a common framework for communication between dApps, the T-REX Protocol promotes interoperability and collaboration between decentralized applications, which leads to more dynamic ecosystems.

Security: Implementing the ERC-3643 standard can improve the overall security of dApps by reducing the likelihood of bugs and attacks, which would increase user and developer confidence in the Ethereum ecosystem.

Efficiency and Scalability: optimizing transactions through the T-REX Protocol can contribute to greater efficiency and dApps scalability, which is crucial for the sustainable growth of the Ethereum network.

However, the ERC-3643 standard also poses some challenges, including:

User-facing complexity of use: SSI-based permission systems can be complex to implement and manage.

Acceptance: The ERC-3643 standard needs to be adopted by several enterprises and financial institutions. Only then will it impact RWA tokenization or Real World Assets-RWA tokenization.

RWA tokenization: benefits of the new ERC-3643

Some advantages of the ERC-3643 standard include enhanced security, lower operational and transactional expenses, expanded opportunities for compliant regulatory applications, and greater simplicity for developers seeking to construct dApps. However, we must also recognize the hurdles of implementing and broadly adopting the standard and the difficulties posed by the need to inform the community about its functionality and potential.

An apartment building

However, the benefits are much broader. Imagine, for example, that a real estate company wants to build an apartment building. The company could seek financing for its operation beyond the usual banking channels, attracting investors interested in the proposal. To achieve this, the company would tokenize its proposal by adding a token for each space in the building, then sell it on a digital marketplace duly regulated for that purpose. Investors who manage to buy a token or a fraction thereof will be the investors of the proposal and, therefore, could access the final proceeds resulting from the sale of such a building.

Once you sell all the spaces in the building, you can start the construction and finalize the sale. This scheme allows investors to recover their investment plus the corresponding profit. City officials and other stakeholders can monitor the project’s progress and conduct the necessary auditing procedures. This option is possible because each data piece stored on the blockchain has a dual existence: a physical representation in our tangible world and another in the blockchain, where it becomes immutable once recorded.

Advantages for investors

One of the advantages is that project investors do not have to be subject to the entire token cycle. They can sell them on secondary markets, whether or not they profit. All this without disrupting the actual investment of the initial project and helping more transparent secondary markets.

In summary, the approval of the ERC-3643 (T-REX Protocol) standard represents a significant step towards improving Ethereum’s infrastructure and strengthening its ecosystem of dApps. This standard is expected to drive innovation in the development of decentralized applications but also contribute to the consolidation of Ethereum as a leading platform in the blockchain technology space.

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