Preface

In the continuous evolution of global financial markets, especially after Bitcoin and Ethereum were introduced through ETFs in the United States, Real World Assets (RWA) are increasingly becoming an indispensable part of the digital economy.

RWA refers to assets that have a physical presence or legal validity, such as real estate, precious metals, stocks, bonds, and other financial instruments. These assets can be digitized and tokenized through the application of blockchain technology, bringing unprecedented opportunities and challenges.

In this context, the practical significance of RWA cannot be ignored. It not only injects new vitality into traditional financial markets but also finds a broader application space for blockchain technology. With continuous technological advancements and market maturation, RWA is expected to become an important driving force in future financial markets, promoting further integration and development of the global economy.

First, let’s introduce what EIP protocols and ERC standards are. EIP (Ethereum Improvement Proposal) and ERC (Ethereum Request for Comment) are two main mechanisms used in the Ethereum ecosystem to improve and standardize different parts.

EIP (Ethereum Improvement Proposal) is an abbreviation for Ethereum Improvement Proposal, which is a technical specification and standard proposed for the Ethereum network. The purpose of EIP is to improve the Ethereum protocol, core protocol specifications, APIs, and smart contract standards. The EIP process includes proposal, discussion, review, and improvement.

ERC (Ethereum Request for Comment) is an abbreviation for Ethereum Request for Comment, which is a standard proposal for the Ethereum application layer. ERC proposals typically involve application layer protocols and smart contract standards, especially token standards.

Early Stage-- EIP884

As early as in the "Delaware Senate Bill No. 69 of the 149th General Assembly: A Bill to Amend Chapter 8 of the Delaware Code Relating to General Corporation Law" proposed to combine assets on the blockchain with Real World Assets (RWA).

• EIP-884 provides a framework for issuing and managing shares of Delaware companies in a compliant manner. It utilizes the widely used ERC-20 token standard, allowing shares to be represented as tokens on the Ethereum blockchain. This standard ensures that each token represents a certain number of company shares, enabling these shares to be traded transparently, efficiently, and securely on the blockchain. In simple terms, this proposal merely integrates traditional finance into the blockchain but lacks many mechanisms.

Basic Mechanisms:

• Token holders must verify their identity.
• The contract must provide the following functions:
• It must allow the company to prepare a shareholder list.
• Partial payment of shares.
• Total amount to be paid.
• Total amount due.
• It must record share transfers.
• Each token must correspond to one share, and each share must be fully paid, so there is no need to record information about partially paid shares, nor are there partial tokens.
• There must be a mechanism that allows shareholders who lose their private keys or are otherwise unable to access their tokens to reassign their address and tokens to a new address.

However, this proposal was merely an innovative attempt, and many internal aspects were not perfected, leading to its lack of long-term promotion and use. Nevertheless, it still provided a significant direction for the legalization of on-chain assets. This proposal was made before the FTX bankruptcy, when there were no widespread chaotic ICO phenomena or issues like on-chain asset fraud, so its feasibility has certain problems.

Problems with EIP-884:

• The proposal does not provide a solution for how implementers can verify a person's identity.
• In terms of permission management, no one can add, delete, update, or replace verified addresses. How to control access to these functions is beyond the scope of this proposal.
• The SEC (U.S. Securities and Exchange Commission) has additional requirements for crowdfunding, but this standard supports those requirements. For example, the SEC requires crowdfunding sites to display the fundraising amount in dollars. Crowdfunding contracts must maintain the conversion rate between dollars and Ether and record the conversion rate.

Development of Token Models

For any on-chain asset, an appropriate token type is always an unavoidable topic. The realization of on-chain assets and cash models in real life, as well as centralized assets in Web2, is fundamentally different, leading to the emergence of ERC20 and ERC721. However, there are still issues such as the inability to batch transfer different tokens, limited flexibility of standards, and difficulties in upgrading. To address various complex development scenarios and achieve the ability to develop hundreds of token types at once (e.g., in blockchain games), ERC1155 was introduced.

For some traditional finance, these existing models are not sufficient, such as futures, options, securities ETFs, etc. Since the implementation of DEX (decentralized exchanges) on-chain uses a product market maker approach for trading, which is significantly different from the order-based form of centralized exchanges in reality, it is challenging to implement futures, options, etc. In other words, it is precisely because of the model of on-chain exchanges that traditional financial models cannot be directly replicated, making it difficult for the real financial industry to achieve a direct leap from Web2 to Web3.

For example, in the case of the so-called risk-free arbitrage of internal liquidity staking in the most basic DEX, this process still faces the issue of impermanent loss risk. Therefore, before the birth of EIP-3475, most traditional finance wanting to enter the Web3 industry for opportunities relied on third parties to operate, such as the previous FTX exchange. Of course, the subsequent bankruptcy of FTX also led to a crisis in the industry, which prompted the emergence of proposals mimicking traditional financial logic. Below, we will introduce EIP3475 and EIP3525.

EIP-3475 Mechanism:

• This EIP allows for the creation of tokenized obligations using abstract on-chain metadata storage. Issuing bonds with multiple redemption data cannot be achieved with existing token standards.
• This EIP enables each bond class ID to represent a new configurable token type, corresponding to each class, with the corresponding bond random number representing issuance conditions or any other form of data in integers. Each random number of the bond class can have its metadata, supply, and other redemption conditions.
• The bonds created by this EIP can also be processed in batches based on issuance/redemption conditions to improve efficiency in terms of gas costs and user experience. Finally, bonds created according to this standard can be split and exchanged in the secondary market.

In EIP-3475, each debt contract is referred to as Class 0, and a contract can contain multiple contracts, similar to the ID of an NFT. Each Class manages a lot of data, including contract name, abbreviation, description, and other textual information. The information can be further subdivided into types and values, such as contract amount, time, deliverer, delivery item, notary agency, and business license number, etc. Its main function is to store highly customized contracts on-chain, which can better save gas fees and optimize functions like batch transfers.

Bonds occupy an important position in the overall debt securities market in traditional finance, primarily as fixed-income instruments, usually issued by governments, and their stability of returns is considered a key factor in the stability of currency and monetary policy. Similarly, in the decentralized finance (DeFi) space, some large projects like Olympus DAO issue specific types of fixed-rate bonds for liquidity provision (LP) tokens. Additionally, institutions like Societe Generale issue bonds as collateral for borrowing from MakerDAO. After trading and staking, bonds are expected to become the next important asset class in the DeFi space.

In simple terms, this EIP can implement a futures short-selling mechanism on-chain. Suppose a futures exchange issues a futures product for corn, requiring delivery after a certain number of blocks. Trader A can buy and sell within this period to achieve arbitrage, but must ultimately deliver. Unlike on-chain lending, this model does not require over-collateralization; as long as redemption occurs at the end, it suffices. Furthermore, this EIP also uses a multi-layer pool model to manage different bonds, achieving debt transfer functionality.

EIP-3525 Mechanism:

• Adds some innovations in storage models based on ERC-1155, implementing specifications for managing different types of tokens on Slots (storage slots).
• Includes an ERC-721 equivalent ID attribute to identify itself as a universally unique entity, allowing tokens to be transferred between addresses and approved to operate in an ERC-721 compatible manner.
• Also includes a value attribute representing the quantitative nature of the token. The meaning of the "value" attribute is very similar to the "balance" attribute of ERC-20 tokens. Each token has a "slot" attribute, ensuring that two tokens with the same slot are considered interchangeable, thus adding interchangeability to the token's value attribute.

In the contract, each Slot corresponds to a type of token, with internal records of ID and value. Owners within the same Slot can perform transaction transfer operations with each other; the arrows below merely indicate internal elements.

For example, if Vitalik and Satoshi each have a bank card in Slot1, they can perform transfer operations, but cross-bank transfer operations cannot be executed directly within this contract. Although each ID has its own Value, different IDs within the same slot can be considered the same, allowing for exchange, combination, and splitting, as indicated by the arrows in the diagram below.

NFT Splitting and Mimicking Real Stocks:

Of course, this is just a small part of the advantages brought by EIP3525. By abstracting accounts into the form of contracts and allowing the value of IDs within a contract's Slot to not be limited to 1, a solution for NFT splitting can be achieved, and a diverse on-chain lending scheme for NFTs can be realized during the lending process. Additionally, through this abstract method, many traditional financial stocks can be mimicked, facilitating the entry of traditional financial institutions, which can address issues such as stock division and dividends by determining the proportion of a slot.

Implementing Anchor Stablecoins as a Basis:

As mentioned earlier, in some DEXs, simply adding liquidity to earn transaction fees may pose some impermanent loss issues. For example, if a person provides liquidity to a DEX liquidity pool, the proportion of the two tokens provided is determined by the current ratio of the liquidity pool. When this person withdraws LP, they take out according to the proportion added to the entire liquidity pool and receive the fees provided by traders. However, over time, this ratio will change with price fluctuations, leading to the final value withdrawn not ensuring profit in fiat currency.

For example, under the background of EIP-3525, abstracting a contract as an ID entering a Slot, let’s call this contract Demo. Since one ID can correspond to assets in multiple slots, when the Demo contract deposits 100 DAI and 10,000 Doge into a contract under the EIP-3525 standard, the assets of Demo can be abstracted into ten parts, each corresponding to 10 DAI and 1,000 Doge. If the Demo contract issues a token based on this new token to decentralize the management of Demo contract assets, obtaining one of these ten parts can ensure relative stable development of DAI and Doge.

Development of On-Chain RWA-- EIP-7092

With the development of blockchain, the issues of multi-chain assets and how to implement reasonable trading rules have become a common topic. Here, we share EIP-7092 (which has now become an ERC).

• Allows investors to lend funds to issuers at a given interest rate within a predetermined time. In return, the issuer promises to pay interest (coupon) and repay the principal at maturity.
• This standard defines all the basic attributes required to model financial bonds, such as issuance date, maturity date, coupon rate, principal, and currency.
• Provides cross-chain functionality for the operation and management of bonds across multiple blockchains.

In traditional finance, bonds are managed by intermediaries, and orders are transmitted and settled through brokers or over-the-counter (OTC) transactions. Therefore, it is usually the intermediaries approved to manage bonds on behalf of bondholders who handle these matters. The ERC-7092 standard can remove these intermediaries, allowing bonds to be traded directly between investors, or using the traditional model but replacing intermediaries with smart contracts. Thus, the bondholders can be individual investors or smart contracts authorized by bondholders to manage their bonds.

If a traditional institution wishes to issue bonds on behalf of its clients through the ERC-7092 standard, they can take the following steps:

1. Create a debt contract that complies with the ERC-7092 standard interface.
2. Create a bank contract as the core contract for all transactions. This contract is responsible for the work of brokers and investment banks. It defines a set of managers responsible for triggering certain operations, such as issuing bonds when the total issuance volume is reached or redeeming bonds at maturity. Investors approve the bank contract to manage their bonds for secondary market trading. In this case, the actual bondholders remain the investors, but bond transfers can only be completed by the approved bank contract.
3. If listing on a bond platform is required, holders or smart contracts may need to transfer the bonds to the platform, which will be responsible for selling the bonds on behalf of the bondholders.
4. Bonds can also be traded between investors without intermediaries. In this case, the bondholders are always the investors or smart contracts.

Other RWA-Related EIPs

Privacy

EIP-7540: Aims to improve the tokenization vault standard for RWA, introducing asynchronous deposit and redemption processes

• EIP7540 is a new proposal aimed at enhancing the privacy and security of cryptocurrency transactions. It introduces zero-knowledge proof technology to protect the sender, receiver, and transaction amount from being disclosed. This will make transactions on the Ethereum network harder to trace and monitor, enhancing user privacy protection. Additionally, the proposal includes a new set of smart contract standards to support the implementation and application of this privacy transaction mechanism.

Standardization

EIP-4626: As an existing tokenization vault standard, aims to introduce specifications related to RWA

• The lack of standardization in tokenization vaults has led to a diversity of implementation details, which is particularly evident in lending markets, aggregators, and inherently interest-bearing tokens. Since each tokenization vault has its unique design and implementation, it complicates the integration of protocols that need to comply with multiple standards at the aggregator or plugin layer, forcing each protocol to develop and maintain its own adapters, which is not only prone to errors but also wastes a lot of development resources.
• Standardizing tokenization vaults will significantly reduce the integration workload of yield-bearing vaults. By introducing a unified standard, developers can follow a consistent implementation model to create more reliable and robust systems. Standardization not only simplifies the development process and improves interoperability between different protocols but also promotes innovation, saves resources, enhances security, and ultimately fosters the healthy development of the entire financial ecosystem.

Security

EIP-4788: Enhances security and functionality, having significant implications for transactions and assets dealing with RWA

• Introduces protocol-level oracles, reducing reliance on external oracles, lowering security and failure risks, optimizing the structure of RWA cross-chain bridges and staking pools, and improving the efficiency of liquidity staking protocols. It provides a more flexible mechanism for RWA bridge and re-staking solutions based on smart contracts, which helps lower the entry barrier for node operators and makes decentralized protocols more competitive.

Infrastructure

EIP-1153: Reduces on-chain data storage costs, helping to lower the storage costs of RWA-related data. Additionally, it significantly reduces the risk of flash loan hacking attacks.

• Introduces temporary storage opcodes for handling temporarily stored data during smart contract execution, which can save network gas fees since this data will be discarded after each transaction and will not be permanently stored on the blockchain. This provides application developers with more flexible storage options, especially for applications that require frequent temporary data storage, such as Uniswap, enhancing the efficiency and performance of the Ethereum network and making operations involving temporary data more convenient and economical.

Conclusion

Through this article, we have explored the development history, technical mechanisms, and related EIPs and ERC standards of Real World Assets (RWA). From the initial EIP-884 to the recent EIP-3475 and EIP-3525, these proposals demonstrate the application potential of blockchain technology in asset digitization and tokenization. Particularly in the fields of financial derivatives, debt securities, and privacy protection, RWA shows broad application prospects and immense potential.

However, with technological advancements come numerous challenges, including regulatory compliance, security, and standardization issues. Through further research and innovation, RWA is expected to become an important force in promoting the integration and development of financial markets and the global economy, contributing to the realization of a more efficient, transparent, and secure digital financial ecosystem.