Deep dive into the technical details of RWA, why ERC-3643 is the most suitable token standards?

Author: J.A.E, PANews

The "permissionless" and "anonymous" genes of the crypto world seem to be two completely opposite universes compared to the strict "compliance" and "traceability" requirements of traditional finance (TradFi). This fundamental contradiction has often been a "shackle" for the large-scale tokenization of real-world assets (RWA). Conventional token standards like ERC-20, ERC-1400, etc., each have their own limitations, thus restricting the large-scale application of securities, physical assets, and other RWA tokenization.

Against this backdrop, a token standard specifically developed to fill this "compliance gap" — ERC-3643 has emerged. It reshapes the technical components of on-chain finance by embedding compliance logic directly into the token itself, providing a "compliance engine" for RWA tokenization that guarantees compliance while reducing costs and increasing efficiency. In this article, PANews introduces the features, advantages, and common cases of the ERC-3643 standard.

ERC-3643: Compliance Token Standard for RWA

On July 31, 2025, SEC Chairman Paul Atkins delivered a speech titled "The United States' Leadership in the Digital Financial Revolution" and announced the launch of the "Project Crypto" initiative. Among them, ERC-3643 was specifically mentioned, becoming the only standard publicly referenced throughout the speech. Paul Atkins stated that when the SEC establishes an innovation exemption framework, it will prioritize token standards that have "built-in compliance." ERC-3643 integrates functions such as identity verification, access control, and transaction restrictions, directly meeting the requirements of the Securities Act for KYC/AML and accredited investors.

ERC-3643 is evolved from the T-REX (Token for Regulated EXchanges) protocol, and it is a set of technical standards specifically designed for regulated assets, enabling the issuance, management, and transfer of "permissioned tokens."

Before the rise of RWA tokenization, ERC-20 was the most widely adopted token standard on Ethereum, prioritizing simplicity and interoperability, operating in a "trustless" environment, allowing for free and anonymous transfers between any wallets.

However, the inherent permissionless nature of ERC-20 makes it unsuitable for RWA tokenization. RWA requires compliance with regulatory requirements such as jurisdictional restrictions, identity verification (KYC/AML), and investor checks. In contrast, ERC-20 grants holders personal sovereignty over assets, allowing them to manage, hold, or transfer to other anonymous users, which is incompatible with compliance logic.

In contrast, ERC-3643 can be regarded as a "compliance version" of ERC-20, which retains compatibility while incorporating unique features such as token identity verification, conditional transfer, and compliance review through smart contract design.

Another compliant token standard, ERC-1400, appeared earlier than ERC-3643 and is specifically aimed at security tokens, adding transfer restrictions and features such as including trading regulatory documents.

ERC-3643 is also an "upgraded version" of ERC-1400. In terms of compliance management, ERC-3643 focuses more on global dynamic compliance; in terms of asset class support, ERC-3643 is compatible with a wider range of asset classes; in terms of technical efficiency and scalability, ERC-3643 has a more efficient storage mechanism, which helps reduce Gas fees and is easier to expand to add new features.

The evolution from ERC-20, ERC-1400 to ERC-3643 reflects that the cryptocurrency industry has initiated a "compliance token arms race," continuously optimizing standards to meet increasingly complex regulatory requirements. ERC-20 exposed limitations in RWA tokenization; ERC-1400 addressed compliance requirements for security tokens; ERC-3643 meets the demand for global dynamic compliance and compatibility with a broader range of asset classes. The historical development of token standards demonstrates that the market is actively developing solutions to bridge the gap between technological innovation and regulatory compliance, with ERC-3643 marking an important milestone in this iterative process.

Cost Reduction and Efficiency Improvement: ERC-3643 Reshaping the RWA Issuance Process

The issuance cost of RWA has also catalyzed the demand for tokenization solutions in the crypto industry, which aims to reduce costs through technological means.

The core reason for the high issuance costs of RWAs lies in the contradiction between the trustless nature of on-chain transactions and the regulatory compliance of the real world, which leads to reliance on intermediaries and ongoing compliance expenditures. Traditional financial intermediaries, such as brokerages, ensure compliance through manual reviews, transaction monitoring, and offline processes, and these aspects are the main cost items of RWA projects.

In response to this challenge, ERC-3643 provides a new approach for RWA tokenization by reducing long-term compliance costs and enhancing overall efficiency through automation and standardization.

Therefore, ERC-3643 may become a key technology connecting TradiFi and crypto assets, introducing a paradigm shift, with the core mechanism summarized as: permissioned tokens + on-chain identity (ONCHAINID). The essence of ERC-3643 lies in its definition that tokens cannot be freely transferred; each transfer requires mandatory verification of the 'identity and qualifications' of the sender and receiver at the protocol layer, requiring both parties to meet necessary compliance on-chain, thereby endowing assets with the advantages of blockchain (such as instant settlement, programmability, etc.) without sacrificing regulation.

Developing "permissioned tokens" on-chain not only meets compliance requirements but also balances the transparency and efficiency of distributed ledgers. While permissionless systems adhere to the pure decentralization philosophy, they are often incompatible with actual regulatory frameworks. ERC-3643 provides a hybrid model: the underlying public chain remains decentralized, offering transparency and consistency, while the access rights to specific on-chain assets are controlled. This design allows qualified investors to participate in a broader crypto ecosystem, benefiting from ample liquidity while fulfilling necessary compliance obligations. This model may also become a key driving force for the integration of blockchain into TradFi.

The built-in decentralized identity (DID) framework ONCHAINID of ERC-3643 is a key module for achieving compliance, ensuring that only licensed users who meet predefined conditions can become token holders. Investors complete KYC/AML verification off-chain, and their identity information is then mapped on-chain and associated with a specific wallet address. This system is the foundation of "compliance-native"; non-compliant entities fundamentally cannot obtain or hold tokens.

The ONCHAINID framework can also be associated with token smart contracts to represent the "identity" of assets, effectively serving as an "on-chain copy" of the assets, and adding any declarations throughout the entire lifecycle of the token. Its high transparency and immutable log entries enhance auditability and trust, reducing the trust risk of delegated intermediaries.

The ONCHAINID contract is not bound to specific tokens, meaning each user only needs to deploy it once, and their identity can be reused for issuing various asset classes. Its reusability is an important design choice that significantly enhances the investor's user experience and accelerates the development of the ecosystem. In TradFi, each new investment tool typically has to go through the KYC/AML process again, which brings a cumbersome user experience for investors. By allowing a single verified ONCHAINID to be used across various issuances based on the same standards, ERC-3643 simplifies the onboarding process for investors. This "one-time verification, multiple reuse" model encourages investors to participate in a broader range of RWA issuances, thereby increasing the liquidity and market depth of the entire ecosystem.

Compliance logic is automatically enforced at the smart contract level. The transfer of ERC-3643 tokens must simultaneously satisfy both investor rules and issuance rules to be executed, effectively preventing tokens from flowing into unauthorized wallets. It also means that the issuer of the tokens can set and update transfer rules at any time, such as setting a trading whitelist, freezing specified accounts, or enforcing transfers.

The value proposition of ERC-3643 lies in transforming off-chain regulatory requirements into on-chain automatically executed "compliance logic" through code, fundamentally changing the compliance mechanism for RWA. Traditional compliance processes are complex and costly, whereas ERC-3643 achieves real-time, automated, and tamper-proof compliance checks by embedding compliance logic within the token contract, reducing long-term auditing and legal costs, while also enhancing transparency and transaction efficiency.

From Traditional Assets to Emerging Assets: The Diverse Use Cases of ERC-3643

ERC-3643, as a compliant native token standard, has a wide range of application scenarios, and its programmability can provide tokenization solutions for various asset classes.

Securities are the most mature and widely used application scenario for ERC-3643, applicable to the issuance and transfer of traditional financial instruments such as stocks, bonds, and funds. Through ERC-3643, issuers can embed governance rules such as dividend distribution and voting rights along with on-chain compliance logic into smart contracts, ensuring that only qualified investors can hold and trade the tokens. For instance, the Dutch Bank issued 5 million euros of green bonds on Polygon using the ERC-3643 standard in 2023, which directly proves the practicality of issuing regulated assets on public chains. Furthermore, ERC-3643 can also play a role in reducing costs, increasing liquidity and transparency, and expanding the investor base.

ERC-3643 also makes it possible to put physical assets on the blockchain, thereby enabling fractional ownership, automated asset management, and simplified transactions of physical assets. Physical assets mainly include real estate, commodities (such as precious metals, agricultural products, crude oil), and artworks (such as collectibles, luxury goods), etc. ERC-3643, through the "fractional ownership" feature, divides high-value physical assets into smaller tokenized shares and encodes transfer rules, significantly lowering the investment threshold, providing higher liquidity, and also addressing the inherent challenges of identity verification and jurisdictional limitations of physical assets. For example, Inveniam Capital Partners tokenized $260 million of U.S. commercial real estate using ERC-3643 and granted investors fractional ownership and access to the secondary market.

In addition, ERC-3643 is exploring application directions in the emerging asset field. Carbon credits, as a type of green asset, typically require strict traceability and transaction management. ERC-3643 can be used to issue and manage carbon credit tokens, ensuring that their transactions comply with specific regulatory requirements. ERC-3643 will provide a transparent, traceable, and regulation-compliant on-chain infrastructure for the global carbon market. ERC-3643 can also enable the tokenization of intellectual property, allowing creators and inventors to commercialize their works or rights. Smart contracts automatically distribute royalties or revenues to token holders, thereby reducing significant manpower costs and operational errors, and ensuring fair and timely distribution of returns.

As of now, ERC-3643 has demonstrated significant appeal, supporting over 120 functions, complying with regulations in over 180 jurisdictions, tokenizing over $32 billion in assets, and creating and managing over 40 types of tokens, laying a solid foundation for mass adoption.