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

Written by: J.A.E, PANews

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

Against this background, a token standard specifically developed to fill the "compliance gap"—ERC-3643—has emerged. By embedding compliance logic directly into the token itself, it reshapes the technical components of on-chain finance, providing a "compliance engine" for RWA tokenization that ensures compliance while reducing costs and increasing efficiency. In this article, PANews introduces the characteristics, 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 "America's Leadership in the Digital Financial Revolution" and announced the launch of the "Project Crypto" initiative. Among the topics discussed, ERC-3643 was specifically mentioned, becoming the only standard publicly cited during the entire speech. Paul Atkins stated that when the SEC establishes an innovation exemption framework, it will prioritize token standards with "built-in compliance." ERC-3643 integrates features such as identity verification, permission control, and transaction restrictions, directly meeting the requirements for KYC/AML and accredited investors under the Securities Act.

ERC-3643 evolved from the T-REX (Token for Regulated EXchanges) protocol, which 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 that allows 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. ERC-20, on the other hand, grants holders personal sovereignty over the asset, allowing them to manage, hold, or transfer it to other anonymous users, making it incompatible with compliance logic.

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

Another compliance token standard, ERC-1400, appeared earlier than ERC-3643, specifically targeting security tokens, and adds transfer restrictions and features such as including transaction regulatory documents.

ERC-3643 is also the "upgraded version" of ERC-1400. In terms of compliance management, ERC-3643 places greater emphasis 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 to reduce Gas fees and is easier to scale to add new features.

The evolution from ERC-20, ERC-1400 to ERC-3643 reflects that the crypto industry has initiated a "compliance token arms race," continuously optimizing standards to meet increasingly complex regulatory requirements. ERC-20 exposed the limitations in RWA tokenization; ERC-1400 addressed the compliance needs for security tokens; and ERC-3643 meets the demands 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 reshapes 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 RWA lies in the contradiction between the trustless nature of on-chain transactions and the regulatory compliance of the real world, which leads to a dependence on intermediary institutions and ongoing compliance expenditures. Traditional financial intermediaries such as brokerages ensure compliance through manual reviews, transaction monitoring, and offline processes, which are precisely the main cost items of RWA projects.

In the face of this challenge, ERC-3643 provides a new approach to 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. The core mechanism can be summarized as: permissioned tokens + on-chain identity (ONCHAINID). The essence of ERC-3643 lies in its definition that tokens are not freely transferable; each transfer requires mandatory verification of the "identity and qualifications" of both the sender and the 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 decentralized ideology, they often do not align with actual regulatory frameworks. ERC-3643 provides a hybrid model: the underlying public chain remains decentralized, offering transparency and consistency, while access to specific on-chain assets is 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 driver 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 permitted 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 are fundamentally unable to acquire 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 can add any declarations throughout the entire lifecycle of the token. Its high transparency and immutable log entries enhance auditability and trust, reducing the trust risk associated with relying on intermediaries.

The ONCHAINID contract is not bound to a specific token, meaning that 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 user experience for investors and accelerates the development of the ecosystem. In TradFi, each new investment tool typically has to go through the KYC/AML process again, resulting in 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 validation, 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 meet investor rules and issuance rules to be executed, effectively preventing tokens from flowing into unauthorized wallets. It also means that the token issuer can set and update transfer rules at any time, such as setting transaction whitelists, 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, not only reducing audit and legal costs in long-term operations but 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 assets are the most mature and common application scenario of 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 with on-chain compliance logic into smart contracts, ensuring that only qualified investors can hold and trade the tokens. For example, the Dutch bank issued €5 million in green bonds on Polygon in 2023 using the ERC-3643 standard, which directly demonstrates the practicality of issuing regulated assets on a public chain. Additionally, ERC-3643 can also play a role in reducing costs, improving liquidity and transparency, and expanding the investor base.

ERC-3643 also makes it possible to put physical assets on the blockchain, enabling fractional ownership, automated asset management, and simplified trading 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), among others. ERC-3643 allows for the "fractional ownership" feature, which divides high-value physical assets into smaller tokenized parts and encodes transfer rules, significantly lowering the investment threshold and providing greater liquidity, while also addressing the challenges of identity verification and jurisdictional limitations inherent in physical assets. For example, Inveniam Capital Partners has tokenized $260 million worth of U.S. commercial real estate using ERC-3643, granting 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 compliant on-chain infrastructure for the global carbon market. ERC-3643 can also enable the tokenization of IP, allowing creators and inventors to commercialize their works or rights. Smart contracts automatically allocate royalties or profits to token holders, significantly reducing labor costs and operational errors while ensuring fair and immediate distribution of returns.

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