Requirements to collateralize a gold-backed token

Ideas
1

Hello Community,

I am part of a real estate company with various projects, and in this case, we are focused on a gold mine. We are exploring the possibility of tokenizing the gold from our mine as a safe-haven asset and would like this token to eventually be used as collateral within the protocol.

We understand that integrating a new asset requires meeting a series of technical, legal, and governance requirements. Therefore, we would like to request detailed information regarding the following:

  1. Technical Requirements:
  • What token standards (ERC-20, ERC-4626, etc.) are necessary?
  • What security mechanisms or audits are required to ensure the integrity of the token contract?
  • How are liquidity and volume assessed when considering the inclusion of a token?
  • What level of liquidity and volume would we need?
  1. Legal and Regulatory Requirements:
  • What legal considerations should we account for when tokenizing a physical resource like gold to be included?
  • Are there specific jurisdictions that could facilitate these aspects?
  • We currently have appraisals of the mine from several reputable companies in the sector and ownership of the mine. Beyond listing this information on the token’s website, is additional documentation required?
  1. Governance:
  • What steps must we follow to propose this token as a collateral asset in the protocol?
  • Are there examples of similar proposals we can reference?
  1. KYC:
  • Is there a minimum KYC process on your side that would facilitate integration, in addition to the one we will conduct?

We firmly believe this token could bring significant value to the community by providing a collateral asset backed by a tangible and reliable resource like gold.

We look forward to any recommendations, additional documentation, or relevant contacts to further explore this process.

Thank you in advance for your time and support.

2

Honestly, I think these questions are best addressed on the AAVE forum.

3

Sorry i have changed the post, because when i was editing it i miss click other message and that-s the reason, if you can answer for compound would be great, we are evaluating many places to do it, and we are asking, what would be the best to do. If you need any information i can give it to you and if you need to talk with the lawyer also i can give you the email.

Thank you in adivise

4

RWAs are still in the preliminary stage.

Not a single DeFi protocol has been able to liquidate a real estate / other non-digital asset RWA when needed. I dont expect things will improve until legal proceeding precedents are set (and work well)

5

Hey! @Lufran Great set of questions. Listing RWAs as collaterals on Compound was one of the key agendas for us (Compound Growth Program) in our early stages, but it got shelved due to the challenges associated with on-chain liquidity of RWAs.

But still happy to give you the details required for listing an asset on Compound.

From Compound’s side, to list a token (in this case your RWA)

Technical Requirements

  • ERC20 and 4626 both are compatible with Compound
  • All the standard security features, bug bounties, audits that the smart contracts should have for the token. It should also have an Oracle, like Chainlink.
  • A qualitative criteria to judge if a token is good to be listed on a Compound is that a ~ $1M swap on a decentralized exchange should generate less than 1% slippage. Of course this is not set in stone and varies on case by case basis.
  • For quantitative aspect of listing asset, whatever trade generates a 10% slippage on a decentralized exchange becomes the supply cap of the asset. Again these are very basic qualifiers, the Risk Management team (Gauntlet) might use advanced criteria for assessing an asset

For Legal, its better to consult a bunch of professional lawyers.

Governance, fairly straightforward,

  1. You make a forum post like this
  2. Gauntlet gives Risk recommendations like this (if there is support for your asset from the community)
  3. Depending upon the recommendations the Compound community develops code to integrate you (Woof team does this)
  4. Code is sent to OpenZeppelin for Audit
  5. Code sent to onchain voting

The community handles most of the process beyond step 1, so no financial commitments are required from your end. But the process takes 100-200K for Compound in terms of work done by service providers (All paid by the Compound Treasury). So even though we do not charge you the proposer anything for listing, the asset should be a profitable endeavor for Compound in order for it to be listed

For KYC, Its a decentralized process so all checks are included in Audits, if any more docs are required then it will be communicated by the auditors.

My 2 cents
Gold backed tokens and other RWAs would make good collaterals for stablecoin markets, similar to WBTC being used to borrow USD stablecoins. In this direction a couple of gold RWAs did reach out to Compound. But their on-chain (dex) liquidity was the biggest barrier. If the collaterals get liquidated, we need onchain liquidity for this.

The alternative to dex liquidity could be instant redemptions where even without dex liquidity, liquidators can redeem the token for another prevalent & highly liquid token. This again, needs to happen on-chain. This option was explored with other Gold RWAs, along with some other forms of redemption, But Gold Markets in London being closed on weekends, instant redemptions become challenging.

If you could figure out the dex Liquidity part, then listing on Compound could be a ‘relatively’ straightforward process, in a way that you’ll clear the barriers that none of the RWAs could do.

6

Listing should take into account ability to liquidate

whatt point is there to list something with super small caps that you cant liquidate?

7

The truth is that what you comment is very interesting and I understand the point that in the end the asset does not have liquidity as any real estate component, we as such are not considering a token of kilos of gold because that generates the problems of having to list all the gold at once. We already have accredited studies (and we are doing more) of the gold in the mine and we do not want to mine it immediately. If we had thought of putting an oracle for the value of gold but at the same time put a small discount to the real value of gold because the exploitation of the mine would be deferred, (I say that in principle at present we do not want to exploit it) and we know that we have to provide the token liquidity to list it so in principle we wanted to list it in a 50-50 or 80-20 the value of the mine, but if we are clear that we have to add real value and in fact we raised one or more preliminary rounds of the token to inject capital into the currency.

With respect to why not liquidate it directly, it is precisely because by being able to act as a safe haven we are considering collateralizing part of the tokens depending on the value and thus be able to generate more possibilities within the project to finance others.

I do not know if this clears up all the doubts but without any problem I would be happy to discuss it with you and solve all the points that you see that may be a problem.

8

Hello Sharp thank you for answering a lot of information. I send more information as i do for mexilc:

The truth is that what you comment is very interesting and I understand the point that in the end the asset does not have liquidity as any real estate component, we as such are not considering a token of kilos of gold because that generates the problems of having to list all the gold at once. We already have accredited studies (and we are doing more) of the gold in the mine and we do not want to mine it immediately. If we had thought of putting an oracle for the value of gold but at the same time put a small discount to the real value of gold because the exploitation of the mine would be deferred, (I say that in principle at present we do not want to exploit it) and we know that we have to provide the token liquidity to list it so in principle we wanted to list it in a 50-50 or 80-20 the value of the mine, but if we are clear that we have to add real value and in fact we raised one or more preliminary rounds of the token to inject capital into the currency.

With respect to why not liquidate it directly, it is precisely because by being able to act as a safe haven we are considering collateralizing part of the tokens depending on the value and thus be able to generate more possibilities within the project to finance others.

I do not know if this clears up all the doubts but without any problem I would be happy to discuss it with you and solve all the points that you see that may be a problem.

Thank you for all, and if it’s needed more information just tell me.

Best