1. Simple Introduction

Semi-Fungible Tokens (SFT) are assets like gold, silver, carbon credits which are broadly similar, with common properties but where the units are not completely interchangeable.

There is demand to bring SFTs onchain because asset holders are looking for new liquidity e.g. rewards for holding gold, new markets for carbon credits; and want to benefit from the low transaction cost, global footprint and fractionalisation of the crypto ecosystem and cryptocurrency holders are looking for asset / revenue backed yields for their stablecoins; they are cash rich and looking for diversification.

Example, LOVE TO Be Bright Green & ecological improvement

If land regeneration is measured and valued we can turn it into a financial product that rewards farmers (Producers) for the good work they’ve done, so that they can do more.
Producers don’t have to own land in order to improve it. Often land is generational so the land and the ecological improvement are never really their asset to sell. But they can sell their ecological improvement work as a product just the same as they can sell their pumpkins, wheat or cattle,
A new market for ecological improvement is being developed. Now there are carbon credits and biodiversity credits. These are offsets for bad performance (grower +1, industry -1). If a company can’t meet ecological improvement requirements, it needs to purchase offsets (carbon or biodiversity credits).
LOVE TO Be Bright Green is selling a product called ecological improvement (product produced by a farmer that has a market) and sells this to the capital market.
The assets backing the company are ecological improvement, verified by Producer Investment Evaluation (PIE) certificates.

Mutual creates value on top of ecological improvement through data etc

Love To & Gild Lab, through SFA creates a liquidity bridge offering exposure to physical assets in the form of commonly traded crypto asset investments.

SFT creates a decentralised link between real world semi-fungible assets, a community property they hold, e.g. income, and the decentralised finance community.

How does it work?

• The underlying asset, e.g. a particular warehouse, is represented with a non-fungible token (an ERC1155).
• A common property across all underlying assets, e.g. income from all warehouses, is represented with a fungible token, because it is shared (an ERC20)
• Asset holders receive the ERC1155 and sell the ERC20
• Cryptocurrency holders buy the ERC20
• Rewards earned are distributed to ERC20 holders
• Assets represent a closed ecosystem e.g. UK vaulted gold only, where there are no toxic assets that devalue the entire system
• Assets e.g. UK vaulted gold, vs Swiss vaulted gold can be traded / arbitraged as well as linked in baskets.

The custodian of an asset can only burn its onchain NFT by burning an equivalent amount of the fungible ERC20 token in the same transaction. This ensures that in aggregate the total supply of ERC20 tokens is always exactly the weight/content/revenue/valuations/etc. across all existing NFTs.

To do this we provide an audit layer, with clearly defined administration of both real world assets, and on chain replication:

• Professional advisors to validate, revalue, and audit the underlying asset.
• Technology to reflect changes in underlying asset or income generation within the cryptoasset tokens
• Reactionary governance set for movements in underlying assets including both solvent and insolvent liquidation events.

To establish trustworthiness between the custodians and non-custodians, a set of certifiers must be appointed. The certifiers audit and certify the claims made by each minted NFT against the assets in the real world. This could be a physical audit such as commodities in a vault/warehouse, financial audit of a business, fine art appraisal or anything else. The certifier publishes their certification that expires at a specific date/time. If the system does not receive a new certification before the expiry then all onchain assets are immediately frozen until a certifier signs off on an extension. The system freeze eliminates the ability for the custodian to arbitrage or collect other fees, so they are strongly incentivised to maintain the system through audit cycles.

In the case of a system wide freeze it is likely that some limited transactions will be needed to repair the internal ledger to a state that a certifier will be willing to unfreeze. A set of handlers can be appointed to receive and send frozen funds in a controlled way. Ideally handlers are rules-based smart contracts, but can also be trusted entities controlling a wallet directly.

What does our system provides that others don't:

• All documents for audit are visible to public, full transparency
• Orderbook offers algorithmic primary market, not reliant on liquidity of secondary markets for tokenomics
• No undercollateralisation
• Orderbook offers multi-token cyclic trading between like assets
• ERC 4626 compatibility
• General public can run data availability, indexing and consensus nodes for both tokens and audit data
• Fully open source and audited contracts.

Example, LOVE TO Be Bright Green customer benefit

For Love To Be Bright Green this means:

• Ability to transact in the onchain ecological improvement economy with the highest quality system
• Provide access to ecological improvement options for all
• All options issued are backed by audited ecological improvement generated
• Fully open source and audited contracts
• General public can run data availability, indexing and consensus nodes for both tokens and audit data
• Systems can adopt Love To ecological improvement options as standard, or at least if less reputable ecological improvement vendors in the future are exposed, Love To ecological improvement options stand independent as high quality
• Ecological improvement offered into the market have an algorithmic primary market, not reliant on liquidity of secondary markets for tokenomics which means no ponzinomics (traditional market, but decentralised).

Hasn’t this been done before?

Realt - Series LLC

Only works in very specific jurisdictions, they work on what is called a "series LLC" and they've many times looked into other jurisdictions and haven't found much traction, they offer direct ownership in a business that in turn owns a thing, so your token is a proxy for literal shares in a company-house, realt company is then appointed as manager.

PAXG/USDT

Neither Paxg or usdt offer any services that allow customers to spin up their own competing tokens to paxg/usdt, our system establishes a credibly neutral permissionless way for people to mint their own "proof of X" onchain and for the general public to not only consume but maintain mirrors/copies of these proofs, this is "vertically scaling" (everyone trusts one token to be the biggest and best and we all live and die by their liquidity, e.g. UST) vs. "horizontally scaling" (everyone can create tokens for themselves, and liquidity comes from free market behaviours rather than more eggs in the same basket).

Purpose build blockchains

The mere representation of something, a ledger, or a data structure, etc. is necessary but not sufficient for liquidity, blockchains live and die by their network effect not their apparent "technological superiority", taking assets to where buyers are is the reason to issue tokens in the first place, otherwise a centralised database may as well be employed as it is a far better representation/storage system than any blockchain.

Failed projects

Projects fail for many reasons, common issues are misplaced trust, failure to attract and retain liquidity, smart contract failures, "smart" tokenomics that turn out to be very dumb, etc.

Misplaced trust: we are building an open system, there will be many untrustworthy tokens and scams, the goal is to present an interface that effectively juxtaposes what a trustworthy token looks like (clean audits, quality assets, strong jurisdiction, etc.) against the scams so that end users can educate themselves and vote for the best tokens with their money. This isn't possible in a world of 2-3 liquid "trust us" style tokens.

Attract liquidity: typically smart contracts don't do primary marketplaces well, something as simple as the yearn buyback system is being hailed as somehow revolutionary, relying on secondary marketplaces means that secondary incentives need to be invented (e.g. "liquidity mining") and centralised primary marketplaces are entirely web2.0. We are collaborating/leveraging the rain orderbook to allow onchain primary marketplaces to be defined via. the scriptable order book.

Smart contract failures: we have a permissionless factory model, which means every SFT deployed under the same factory has the same bytecode, the factory has no ability to be upgraded, which means that the contracts accrue "lindy" over time, which means that the longer they are not hacked at the code level, the longer we can expect them to continue to not be hacked. This means that the system becomes stronger as more liquidity "scales in" to it (upgradeable contracts do not have this property as new bugs/vulnerabilities can be introduced with every upgrade).

"Smart tokenomics": SFT has zero tokenomics beyond the onchain/offchain value binding via the NFT receipt and audit system. There are no fees, liquidity mining or other systems that often end up being intentional or unintentional ponzis that ultimately implode. Even the PAXG fee structure runs counter to the use of gold as a store of value, as fees are only accrued to the issuer when the tokens are transferred, etc. The primary utility/value for custodians of an SFT is liquidity+arbitrage. It takes custodians to a new market and gives them first seat at the table for onchain/offchain arbitrage against their own peg.