Building Compliant RWA Infrastructure: From Regulatory Requirements to Market Reality

Transcript

Hey guys, good afternoon. Pleasure. Thanks for coming. Appreciate it. Uh my name is Dennis Okonnell. I'm the president of uh the ERC 3643 Association. Um and I have my uh very good friend. Um Jookm, do you want to introduce yourself real quick? Yes. Nice to see everyone. So yes, I'm Jakim. I'm the chief blockchain officer at Tokuni and I'm also the one who created at the very early stage the ERC3643 and still maintaining it uh until today. So yeah, nice to nice to be here to explain to you what it is.

Yeah, absolutely. Thank you, Shakam. Um so this is great. I'm glad you guys all showed up. Um we're really excited. Um just quick show of hands. How many saw our news yesterday? Oh, okay. So, this is good. Um, so you may have seen a uh announcement. I'll show it later. Uh, that with um Chain Link and Apex uh we announced a fully oracle enablized uh token standard um called the ACE um and we're uh working with some of the largest institutions in the world uh to adapt it. So, um, we'll go into that, but we had some big news, uh, which is great. Um, today we're going to talk about, uh, the ERC 3643

standard in the context of regulatory requirements and market reality. Um, and we'll get into some stuff. Um, by the way, you guys are here making history with us. This is our first ever ETHC um, presentation. um despite being here and I have to give a huge shout out to VC and the Etherealized team and James at the Ethereum Foundation for uh welcoming us into Ethereum finally. It's been far too long. Um so yeah, despite uh our modest presentation today, we've actually been quite busy. Um the standard and the association, the nonprofit association, which we'll talk about today, um has been quite active.

Myself, I've had a uh longtime career in TRDFI. Um, JOKM has had a longtime career um in advanced engineering and and smart contracts. Um, and the standard we built together has taken taken on notice and we'll we'll talk about a little bit of each of this, but we as a we're a Luxembourg nonprofit, so a membership is free and we have been doing anything from meeting with different regulators around the world, um, working with law firms to understand securities laws. Uh we have almost all the L2s and Ethereum as our and the Enterprise Alliance as members. Um we have a plethora of custody platforms. Um

and of course we've had uh many public pilots um many of them joining um that really uh are doing a lot with the standard behind the scenes which is really really exciting. In fact of this bottom row here Apex, Invesco, Aban Emerald, Deote and DTCC are all named public members. Um and the other ones are involved in in pilots which is great. Um so as mentioned um we already have a hundred uh institutional members and we'll be growing even more beyond just institutionals which we'll talk about at the end. Um and generally we bring together uh I would say five different groups of participants whether it's licensed financial institutions,

blockchain web 3 providers, tokenization platforms, um global law firms and of course uh consultancies. So you're probably wondering well what are they all doing? Well um the token standard has had quite the adoption. In fact um we have analytics dashboard. I'll have a few QR codes uh throughout the talk. Um so feel free to peruse them. If you're on your phone looking at it, all the better. Um and uh we're working on even more dashboard analytics uh to capture all 35 billion of our assets on public and private chains. Um majority of them a lot of people ask real estate um is a big one. Private funds is a big one. Um we are not appropriate for stable coins

and we'll get into why that is. Um but really we shine whenever uh you need some sort of compliance or some sort of control on top of uh the token. Um as mentioned we've done a lot of regulatory engagement. We're a recognized RWA stand. So what does that mean? It means we've been in the regulatory report. We're in the sandbox. The regulators outright said 3643 is the preferred token uh for uh you know let's say funds uh bonds any sort of asset that requires a compliant control. Um you also uh will also get into EIP in a little bit and of course we have a self-s sovereign um identity layer called onchain ID which itself is pretty um popular. Um the standard itself um so why would you use

the 3643? We have ERC20 721 you know why would we use this standard? Well the standard like all the other standards has its place in its functionality. It's not meant to dominate all the other standards not meant to replace all the other standards. meant to do something very specific and that is really working with RWAS or security RWAS that really require a level of control a little deep control in terms of the ledger itself and so this is really appropriate for um all sorts of commodities contracts that sort of thing securities is our bread and butter um you can use it for e-oney in the case where um you may want to have uh more advanced functionality we'll talk about that function

functionality. Um, and of course even loyalty programs. So your points like you know if you have an air your favorite airline, your favorite travel agency, you can use this and all these circle around the idea that the issuer has control over the ledger and is able to update the record. And so as I talk to you about this, sometimes issuers want the ability to go in and intercede or do uh things like clawback, pausing the tokens, pausing the account or whatever. And so sometimes people don't like that because it's not very DeFi or decentralized. And I totally agree. So we say in cases where you have an issuer that has either a requirement to control the integrity of the ledger, they

they're the ones that need to go uh in and uh update it. Um that's really where this standard comes into play. Um as I mentioned, EIP is official um part of the Canada standards, which is really cool. Um the team Jo has done tremendous amount of work. This was before I joined um that they actually put together what's called T-Rex. Some of you guys know our standard by the T-Rex standard which is a lot more fun and we'll get into the future of that. Um but as you can tell there's a lot of token standards believe it or not in Ethereum. Uh but in terms of us where does 3643 come? Well it comes from the EIP we were assigned uh back then. And of course in December of 23 we reached final status joining the other cannon of of major

standards which we're quite proud of. Um so what is 3643? I've been talking a lot about it. Well you can think about 3643 as wrapping an ERC20 and you're wrapping it with a few different things. First of all you're wrapping it with an identity layer. So your wallet address isn't your primary means of holding the tokens. You have an onchain ID and onchain ID really does two things. It holds addresses and it holds claims. Okay. Then you have what's called registry. And the idea of registry is these are permission cryptographic claims. We we'll actually show this um that tell uh whether you're an issuer, a admin or a hold token holder what your permissions are or not.

Um you have a compliance module. So this is for the asset the rules. if you're trading too much, if you're a certain country code, if you have uh too much of a diversion of price, whatever your rule is for the asset, it protects the integrity of the asset. And then lastly, we wrap the ERC20, you know, your favorite functions, you know, transfer, transfer from. Um, and we wrap it around an entire compliance uh process. And so um you could do your transfer and transfer from just like you can with any ERC, but a lot more stuff happens behind the scenes. So obviously it's a gas you know big gas difference um as well but over 120 different functions uh usually what we say is three functions are most important transfer force transfer and

recovery um transfer because it's from a superficial level completely compliant with ERC20 of course a lot of stuff happens below the scenes we'll talk about that um then force transfer which is the most lightning rod of all the uh functions that's the ability for the issuer to go in and literally move tokens uh behind um without the investors or token holders uh permission and there's you know sorts of compliance reasons for that or whatever. Uh so it's important that you know that going into the standard and of course recovery uh which means if your wallet address is compromised in some sort of way because you have an onchain ID we can flip out the wallet address and migrate all all your tokens. So obviously there's some good and some bad. Okay. Um so ERC 3643 um as is really primarily a compliance

framework. That's like I said our bread and butter. You wouldn't use it for stable coins necessarily. You would really use it for securities or things where the issuer needs to have that control. And in our world we look at it in two ways. A way where the issuer creates the token and sends it to an investor and then when the token holders they have uh the tokens and they trade amongst themselves. Um and that's really interesting because we can enforce that investors either uh swap with a certain token pair or certain stable coin and we ensure that whichever investor has the correct set of rules or identity and meets all the compliance. Um so why do we have a a tokenization framework? Why the need for a standard? So 1400 was a really great exercise. In fact, 1400 we

look at as part of the Canada standards, even though there's about about a dozen of them with different implementations, but they're never officially an EIP standard. And so each 1400 is slightly different than the other. Um the way they do things is slightly different, but still adopted by some very large RWA shops in in our space, which is great. But what we see here is that having standards, especially from my background in finance, is really fundamental. In fact, there's all types of standards, not just token standards that we enjoy every day that a lot of just use. There's standards for cell phones, communication, even the way our credit cards work, all that sort of stuff. And what that does is takes pressure off of participants to stop reinventing bespoke um implementations to meet whatever

requirements they have. You have these requirements and again, as I mentioned in the news today, we're continue to innovate. So just because we're standard doesn't mean we stagnate. What we're trying to do is encourage adoption and growth while also encouraging innovation which is not always easy. As you can see here, we have a big set of EVM and non EVM um implementations which we'll get into. Um and then obviously part of these token protocols are also built on an ecosystem and there are all types of standards not just token standards for this. Um so as mentioned we're in a lot of institutional adoptions and pilots.

Um project spruce out of Singapore uh was very good which is a mention of us and again you can look up all these online or whatever. Um JP Morgan Chase did emerging technology report on our standard. Um Abaro issued a green bond which was great as well and they've done more since and uh Fasinara has also issued their money market fund on Polygon uh using our token standard as well. Um DTCC joins DC is a big deal 100 trillion in assets. Um so they've looked at the standard and they view it as part of their collateral infrastructure what they're doing on EVM based blockchains.

Um and using this 3643 um as part of their overall infrastructure uh to control the ledger and that sort of thing. Um this is our other third founder Luke Flempton uh of Tokeny. Uh we won an award from Deote for innovation initiative of the year. Um and then this is today chain link announced automated compliance engine with chain link CR opening up the ability to literally do 100 trillion in in assets and a lot of that comes from private market and securities. It's a big deal what we've been working on with the largest fund admin in the world Apex has over 60,000 funds globally. Um so putting these together with um chain link Apex and uh what was the other one?

G the one that standards G sub G life thank you. Um, so go and X, look up Chain Link. You'll probably see them tweeting about us today, which is really cool. Uh, and then of course, um, we did a crosschain DVP with ABLE, layer zero, and Apex as well. So, we're really pushing the boundaries with the standard because we enjoy this compliant functionality. Uh, regulators around the world, as I mentioned, uh, we continue to engage with them, which is actually surprisingly unusual for Ethereum. uh we find that 3643 is one of the few nonprofits in the world that are actively going to regulators and I think that's for the reason that we need them to look at the standards and we're not

looking to change laws. looking to have a dialogue and say, "Hey, if we want tokenized securities, you our standard gives you comfort that you have control location, you have full compliance, and that's always important." Um, and again, being careful not to say, "Hey, 3643 is not for everything. It's just for these situations and regulators like that." And in each of these different reports, whether it's HKMA, Mass, FCA, ESMA, what always comes to mind is identity. How do I prove who is operating offchain versus onchain? How do I have a certainty that they have their permissions? So in the regulator world, it's not just can I do it, but do I have the permission to do what I'm doing at the time I'm doing it?

And then most importantly, stopping what we call like the runaway train. You know, let's say uh a person has uh fund shares on tokens and they lose their KYC status. How do we revoke KYC status? what if we need to look at and pause uh the individual investor? What if there was a fraud that occurred and someone's tokens were stolen? Can we bring that back to them? So, in cases where you're having actual securities, having the ability to correct your balance is fundamental. Actually, having the ability to lock tokens is fundamental and have the ability to grantly pause uh uh issuers or um token holders, excuse me, is also fundamental. And they all look at all this of 3643. They look at the architecture, which we'll talk about

in a bit. Um, and I'm happy to say that we're doing even more on the regulatory side to really kind of push the boundary of getting uh public assets on public blockchains and Ethereum. So, we're very happy with that. Um, I'm going hand it off to uh Joam who literally invented the stat the uh standard. Um, and you're in for a treat because I think this is what one of your first public speeches about this. So, um, please give it up a little applause for Joe Cam. Please come. [Applause] Uh thank you Denise. So yes let's speak about what it is like technically speaking the ERC3643 standard. So the first part uh Denise spoke about it

already. So is the onchain ID. So what is onchain ID? Uh it's an identity smart contract. So every single stakeholder in the ecosystem, every single investor, the issuer and even the tokens themselves have an onchain identity. Uh depending on who has an onchain identity, the the use will be a bit different. But the way that it is used um in the smart contract is to verify that you hold verifiable credentials that allow you to receive the token that you are eligible.

So yeah, the key features of uh onchain ID so is decentralized. So it's a self-ser identity system. So the owner of the identity is always in charge. Uh it's based on ERC 734 and 735 standard. So 734 is for key management. So it's access control on the identity. Uh 735 is about being a claim holder. So a claim is basically the structure at the smart contract level to hold variable credentials. So it has different uh fields like data field signature that proves that that claim is certified and yeah it's um it's very widely used now

uh and it's compatible with uh W3C verifiable uh standard like uh uh verifiable credentials. Uh so yes next. So that part here uh the identity registry is what the issuer has to uh keep uh control over uh to set what are the rules of eligibility on your uh tokens. So the issuer will add to the trusted claim issuer registry who are the trusted uh claim issuers. So it's basically for example KYC providers uh

AML checkers uh whatever entity has the authority to issue these verifiable credentials uh and every claim issuer is an onchain identity smart contract itself. So onchain identities can issue claims and can hold claims. Uh the other one is the trusted claim topics registry. So that one holds the list of claim topics that you need to be eligible on an asset. So uh for every trusted claim topic in the claim topics registry, you will have a trusted claim issuer that has the authority to issue it or several uh trusted claim issuer.

It depends if uh if you have one or several. And then you have the identity registry itself which implements the most important function over this which is called is verified. That function is going to check when you make a transfer is if the recipient of the transfer, the wallet that is going to receive the transfer is linked to an uh an onchain identity and if that onchain identity holds the required claims issued by the trusted claim issuers and it will verify the signature the cryptographic signature to make sure that the variable credential is valid.

So yeah, actually I I spoke about that already. So it's uh yeah yeah yeah let's uh go on the compliance side. So the compliance smart contract is a bit different. So the identity registry side is about eligibility. So it's about knowing if the investor receiving the tokens is eligible to receive the asset. uh on the compliance side it's more about the global offering like if the transfer itself is compliant so even if you are eligible to receive the asset maybe the transfer will not be compliant uh because several reasons for example

if you have a reg in the US you have a maximum number of investor in the US uh if you already have uh attained this cap then you cannot receive tokens even if you are eligible or if you have a maximum volume of transaction per day per month per investor and you already achieve that that cap then you cannot make the transfer. So that's that's about it and the compliance smart contract is modular. So every single specific rule I gave two examples but each of these rule is a separate module of compliance and uh you can plug these modules to the modular smart contract.

So you can really tailor made your compliance rules depending on the legal requirements that are associated with the asset. So the last point is the security token. Uh so it's an ERC20 basically uh but extended. So you have all the all the functions of ERC20 are there. So you can it's basically interoperable with any D5 platform that has been built for ESC20 which is great but it has also other functions. So uh the other functions are uh Denise spoke about it already uh pose freeze force

transfer recovery uh mint burn like a lot of different transfer uh function which allow to have control over the asset because these assets are permissioned tokens and you cannot just transfer them freely or do whatever you want with them. It's a regulated assets. So it's uh it's very important to have this kind of uh controls over the assets. Yeah. So that's um the function transfer. So just to to show you um when you make a transfer instead of having the simple transfer like an ERC20 where you just look at the balance and if the balance is enough you just can do the transfer. Uh here you are going to check

if the address is frozen. If the tokens like if there is some frozen tokens on the wallet and if the free balance is enough to transfer then you are going to check if the receiver is verified. So if the receiver is eligible to receive the assets and finally check if the transfer is compliant with the can transfer function called on the compliance. Yeah. So that's the force transfer. So it works a bit the same but the the difference is that uh in this case it's only agent function. So it's the agent of the of the assets that can call this function and make a transfer between

from and to address without the consent uh necessarily of the of the token holders. So it's u it's a very powerful function which should be used only regarding like the regulation like it has to be legal to do that the issuer will not scam you. Uh that's a very important point. These are regulated assets. Uh agents managing this kind of function have legal liability over what they do and because the blockchain has a full transparency about everything that happened on the ledger. If a force transfer happen, which is not something that is supported by law, you can just sue the the agent. So that's that's also

something that has to be said because I know that some people freak out about this uh function, but this function is necessary for regulated assets otherwise the issuer and the agents cannot fulfill their legal requirements. Yeah. So that's uh another project that we are working on. So uh Denise spoke a lot about the ERC3643 association which is uh really a B2B consortium uh with all the actors which are building on top of ERC3643.

Uh think about T-Rex network. So that's uh the that initiative that we are creating. Think about it as the B2C arm of the ERC3643 [Music] um adventure let's say. So we are going to create a DAO uh for um governing the ecosystem and uh the the T-Rex network project is about three things. So first it's to create a community around the standard make people understand what it is and uh create this mass uh understanding of what it is and how it can be used. So bring a lot of people to collaborate on

the ecosystem. uh bring people to check what uh what is the code uh to to make suggestions to have really this uh empowerment from the community. The next one is an app store. So we have noticed because we have been in the space of RWA tokenization for so long uh token is uh eight years old now. So we were there before there was even a hype about RWA. No one was speaking about it. uh but uh we have seen that it can be very complex for issuers uh to understand how to issue these uh assets on chain to tokenize real world assets uh especially when they come from trafi and they have

absolutely no ID so they can get lost very easily uh with uh legal concerns who don't know what they speak about with uh technical teams who don't know what they do or uh every everywhere along the way with distributors ers that are not uh allowed to uh manage these tokens or are not aware of how it works. So the idea is really to create this app store with all our partners mostly from the ERC3643 association to provide um turnkey solution for issuers to find all the partners that they need. So legal partners who know what they speak about uh tokenization solution uh technical

solution uh turnkey where you just have to give your details about your asset and you have uh the token that is issued distributors uh network of uh potential investors for the different assets and everything that you need around it. And then the last one is an app chain. So that's that's going to come uh later on. But as the world is evolving to a more and more crosschain uh ecosystem with many chains that have to communicate with each other uh you have to understand that um when when you have to work on different chains with this kind of assets which have this uh compliance embedded it's

much more complex than uh simple ERC20s. ERC20s, you want to bridge them, you just bridge the balance and that's it. And then you don't need to take care about what is happening next. But imagine you have an asset which is on 10 blockchains in parallel and you have a maximum uh number of investor in a specific country, let's say 10,000 investors. How are you doing that? Like every single transfer has to update all the blockchains in parallel. It's almost impossible. So you need to have a single source of truth to make sure that you are not going to break the rules. Uh and that's why the app chain is there in collaboration with what we have been announcing uh just yesterday with chain

link as well which is uh making this coordination possible. So we we just launched actually the social medias on the T-Rex network like um one months ago uh and in the first two weeks we already gathered 100 uh thousand members on on the social media and if you want to join uh this is the QR code you can scan it and have a look. Thank you. Thank you Juken. That was great. Um, I think we're uh good for questions. I'm going to leave a QR code up uh for everyone. Um, because as Joan mentioned, we're definitely looking to um engage

the Ethereum community more. As I said, builders, small projects, um, anyone who wants to get involved, uh, T-Rex is is for you. And then um, if you're an institutional or a large DeFi project, um, the association is is your best bet and we'll go there. So, I see some questions. So, we'll get to some questions. I saw you first. So, um, please and just let me know if it's for me or is it's for you or both of you. I think either of you can answer this. My question is about onchain ID and how much the contracts give the ability to like remove that provider. I'm not sure how deeply integrated they are into the T-Rex network, but like if you needed other providers like if there's competitors because that one's obviously

permission. That's the permission element that makes sense. if there's other like opinionated, you know, registries that someone might want to use, like how much can you switch out? How deep are they like integrated into the T-Rex network? I love this question. Um, this is a great question. Thank you for asking. And I mean that because I think it's one of our top questions about onchain ID and there's a lot of confusion about how much is onchain in or in or out. Um, I think both of us should answer this. So I I'll give my side of this question which is um we see a lot of our members actively innovating on onchain ID actively in fact even the announcement with chain link uh uh yesterday was towards some of the points you just brought up about creating a uh oracleized connection to the identity uh

for certain claims or certain cryptographic proving. Um but in terms of the actual onchain ID itself related to uh the token standard or the registry it really has the two hooks a 734 and 735 interfaces and so what we usually tell members is if they want to innovate maintain that interface but then you could have uh different invitations behind the scenes. You come you want to take a shot? Yeah of course. So um another point uh that I I want to mention about onchain ID. So onchain ID is a fully open source uh smart contract. You can implement it the way you want as uh Denise was mentioning as long as you respect the the interfaces and we are working more and more with uh

partners uh other providers uh especially uh smart account providers so that they uh put the claim uh holder interfaces on top of the smart account. So you could have for example with argent or economy or whatever uh you could hold claims there and use it. So you don't need to use the implementation of onchain ID that we are providing since the start. You can use whatever. Thank you. Um question go ahead.

Just real quick uh what are your plans um for engaging with US regulators? Um, I have already actually I'm uh I didn't mean to laugh because um I'm not sure. I think we're recorded. So I a big announcement coming up. Let's just say that big announcement with 3643 and the SEC and the crypto task force. Um what I will tell you is last year I actually did a presentation to the SEC and Chairman Gensler and at the time I think we had like 50 or so members and all the members said do not mention us. Do not talk about us. Do not say anything. Um, and I could tell you I was pretty damn nervous. That was in March last year, um, doing the speech to the SEC. And what frustrated me is they were always

very good, but very limited. Now I feel like, you know, it's, uh, in America, we have Black Friday, which is, you know, a rush to the door. Um, I can't even get in. You know, you go on this SEC crypto task force website, they show all the written input. Everyone and and their mother are going to the SEC, which is an amazing thing to say. Um but it's not just the SEC, right? You have the Senate banking, you have the executive task force, you have the um House Services, you have the CFTC task force, you have about five, six entities now. So it's um it's a very very different time. Uh great question. Next questions questions.

um that might be actually related to your uh answer but you know I've been in this space for like nine years and uh we've been uh observing different uh attempts uh at doing uh tokenized securities for so long um with securityize other companies right and you know it it all kind of failed so I'm I'm I'm just generally curious uh why do you think this time is going to be different you know uh what's changed Um what is your take about this? You know, we'd like to be optimistic, but why since we failed so many times? Uh great question again. So uh for the association, we have three major uh mandates uh for um uh the members,

right? Three directions of travel that we want for uh the standard. And one of those mandates um is um we are very bullish, I think you and I agree on this, of uh bridging into DeFi. Um I think that's really the future. Um I think we agree that permission so you mentioned you know it's it's failed. Well, what you're referring to is that there hasn't been a large um coming on of permission institutional uh buyers or participants of these tokens, right? Securitize is um a transfer agent uh license, right? Cap, you know, they work a lot with Black Rockck and have these big institutional funds. You know, you also have Centrifuge, Ando, Goldfinch, all these guys or whatever. Republic is another

one. Reg CF for them. And what's the primary challenge? The primary challenge is that the the adoption the the demand for KYC and for buying tokens has fundamentally failed. That's the failure, right? So we either can do one of two things. We either can try to overwhelm supply and get as many assets on and try to attract them. But again, that still fails because apples to apples if I still have a share versus a token, what can I do with the token? The token has to have inherent incentive and that incentive is only corrected through DeFi and through public blockchains. So, we have been actually working quite a bit with our members and that's also part of the reason why we're doing T-Rex is to bridge RWA and DI. Some people call it RWI. I think we have enough

stupid acronyms, but that's okay. Um, but ultimately maintaining the part that needs to be compliant with the one part that shouldn't be compliant and should be much more um incentivized. You could do leverage trading, revert round trading, you could do indexing, all sorts of things, but that all happens on DeFi on permissionless. And I don't think that's going to change. I don't think we're going to see the advent of lots of permissioned wallet. Now, when I say permission, I mean, you know, you get an onchain ID, you got a claim, you go to some, you know, transfer agent or broker dealer and they KYC you. I think that's the past, honestly. So, hopefully it gives you some hope. I got I got a little bit of hope. Okay, I got one more minute, one more question.

Any questions for Joe Camaray? Okay, let's do I don't know if I can give a because you mentioned DeFi and this is very interesting. So, how do you envisage the force transfer function not to screw up AMMs? How do I envision the force trans not to screw up AMMs uh by keeping the force transfer nowhere near them? This is always what Joe Cam and I emphasize is we're not trying to get force transfer into DeFi. It's not appropriate. That's not what it's needed for. It's really appropriate for what we call primary permission functionality, right? So where you put the security natively onchain and that needs to have um integrity of a ledger, but we're not

looking to make a, you know, parallel DeFi ecosystem where everything's permissioned and and you have all these ridiculous, you know, back doors. That's not that's not the way forward either. I think that's not any questions for Joe. Okay. Thank you guys so much. Appreciate you coming. [Applause]