TLDR: Real world assets (or, how crypto calls them RWAs) are essentially shares of existing assets that are tokenized 1-to-1. At the time of this writing, yield bearing assets like U.S. Treasury Bills, gold, green energy, private debt and emerging market credit, money market funds, hedge funds and various equities are being tokenized and brought onchain. So far, only private tech exists that lets issuers do that. We're proposing and releasing an initial version of a fully open source stack to do the same, better, faster, cheaper.
Open access to the walled gardens of the financial world has always been one of the most talked about topics in crypto.
Recent news and pundits paint a future where people invest in assets they’ve never had access to - from solar fields and startups, to money market funds and tokenized T-Bills. Despite all the think pieces, compliant infrastructure to fully realize this is lacking. We do have more walled gardens though.
We thought that needs remedying, so we’re uniting founders working in the tokenized asset space to create public-good infrastructure. We're focusing on the challenges of permissionless RWA tokenization (spoiler: it’s all about cap tables), and introducing our proposed Transfer Agent Protocol (working title).
Why not restricted token standards?
Existing restricted token standards like 1404, 1400 are incomplete solutions that are not yet fit for institutional use cases under the US and global regulation. When used, they create primitive cap tables without fully representing the assets they tokenize. 3643, in contrast, leads the way in the EU jurisdictions with $26B tokenized using the standard. It would need to be extended to represent ownership records on the asset issuer's cap table for most use cases in the US.
Simply, to own any real world asset is to be recorded on its cap table as a stakeholder (i.e. investor). So tokenization isn't just minting tokens; there's still the cap table to consider. The cap table tracks share ownership for all parties involved, simplifies transactions, and ensures regulatory compliance. In crypto, a well-designed cap table negates the need for restricted tokens, serving as the final arbiter of the truth.
We’re releasing the initial version of the protocol stack in the fall of 2023. At first, targeting tokenization platforms that bring real-world assets (RWAs) onchain under Reg A and Reg D. If you’re building one, we’d love your help, collaboration and feedback. We’re also looking for community leaders and crypto native RWA-focused startups to join our next founding partners cohort.
Tokenization of real world assets
Crypto is leading the wave of real world assets appearing onchain. Tokenization involves:
Converting a registered security, always reflected as a class of stock, into a token
Ensuring that only KYCd/KYBd investors can buy it
Investors can buy tokenized shares of anything (for example, the upcoming short-term government bond Superstate built by the founders of Compound). By investing, they gain direct economic benefits (like revenue sharing) based on their ownership. As these shares are traded, the cap table which records ownership stakes gets updated.
In traditional finance, cap tables for certain assets are managed by transfer agents (TAs). They're essentially managers of cap tables that are licensed with the SEC. TAs provide foundational structure we aim to integrate into the crypto world as well. For example, ALPS Fund Services is the transfer agent for Superstate.
You can read this on Superstate's SEC offering document:
In the future, the Fund's shares may also be available for purchase, sale, or transfer from one shareholder to another "peer-to-peer" on a blockchain by utilizing Secondary Blockchain Records. The Transfer Agent's Official Record would be reconciled and matched routinely with the Secondary Blockchain Records to effect any peer-to-peer transfers of shares. However, peer-to-peer transfers are not currently, and may never be, available to investors, and would be subject to then-existing regulations and regulatory interpretations.
Also notice their mention of using the blockchain to maintain secondary records.
…Fund shares purchased by a shareholder will always be recorded in the records of the Fund's transfer agent, ALPS Fund Services, Inc. ("ALPS" or the "Transfer Agent"). Shares owned by the client which are associated with Secondary Blockchain Records will be publicly viewable as being owned by that blockchain wallet address, e.g. in a "blockchain explorer."
From the moment shares are first created, and allocated to their owners (called primary issuance), to trading (called secondaries), a transfer agent records everything that happens to each share. They store data about how many shares there are, how much they cost, who bought and sold them, and at what price.
Why is this noteworthy? Because it demonstrates how tradfi and blockchain complement each other, especially in recording and updating ownership stakes in real-time. You might be familiar with the Mirror Table concept outlined by Balaji, which sets the same stage as here.
So what's the problem?
Plenty of tools exist for creating and managing cap tables in web2, but none of them support the onchain issuance of tokenized securities. Why does this matter? Because bringing real-world assets (RWAs) onchain seamlessly involves minting a cap table for that particular asset. Once it's onchain, enabling peer-to-peer (P2P) transfers becomes feasible.
Let’s revisit that superstate filing:
…peer-to-peer transfers are not currently, and may never be, available to investors…
This quote underscores the void we aim to fill. To make P2P transfers possible, several critical components need to be in place:
Cap table records stored in a distributed database
Comprehensive recording of all stakeholders and their respective ownership stakes in that database
Mechanisms to prevent stakeholders without shares from making unauthorized transfers
What we've described here essentially outlines the requirements for an onchain cap table manager. But building such a manager is complex and demands:
A full and complete data model that governs a cap table. Thankfully, one already exists - Open Cap Table Format.
Sophisticated knowledge of Uniform Commercial code (articles 8 & 9), which governs investment securities and transactions
A skilled team proficient in both traditional web technologies and crypto
Understanding these challenges sets the stage for the transformative impact an onchain cap table manager could have, especially in enabling real-time updates and P2P transfers of ownership stakes.
Transfer agent protocol
So we have assembled all the necessary components. We aim to provide not just a product but a protocol stack. Our goal is to give the crypto community compliant infra to build our own tools capable of minting in-demand RWAs: https://transferagentprotocol.xyz/
Crypto deserves compliant infrastructure for tokenized capital markets. We believe it must be truly open, free, and user-centric. We're not convinced that ex-Wall St. types are capable of materializing our shared vision, and fear they might get it wrong. We're working to get it right.
We're using the Open Cap Table format as the foundational data model for our protocol. and run schema validation on every cap table mint. Our legal team help us ensure that the entire stack is regulatory compliant. We're building this onchain-first, under the MIT license. Initially, we're deploying on Optimism, Base, and Plume, with a roadmap to extend support for additional chains.
Our first stable release is anticipated in Q1 2024.
