In this blog post, we propose an economically sustainable, financially palpable, and conceptually plausible framework for tokenizing non-fungible RWAs on Ethereum via the Xyxyx Launchpad.

To exemplify the functionality of this framework, we’ll use a land plot valued at $1 million as a reference.

First Stage

Event 1: Tokenization

• A 1x1-based smart contract becomes issued, with a capped supply of 1,000 tokens.

• The smart contract has 18 decimals, meaning that tokens can be traded in fractions of up to 0.000000000000000001 of a token.

• Each 1 full token has a visual output embedded, which embodies a text-based ownership share certificate:

Event 2: Pre-Sale

A pre-sale of 900 shares (90% of total supply) becomes realized by the originator seeking to raise $1 million ($1,111 per share). This sets an initial market cap of $1.11 million for the tokenized land.

Event 3: Market Making

The remaining 100 of the 1,000 shares retained by the originator during the pre-sale (theoretically valued at $111,100) are paired with an equivalent amount of USDC (111,100 USDC, with an initial price of 1,111 USDC per share) to provide liquidity through the creation of an Uniswap LP.

This LP serves to root and bootstrap a market for the tokenized land.

Please note that the USDC used as collateral in the LP is funded (or ‘‘lent’’) by the originator using funds from the pre-sale raise.

Event 4: Listing on Secondary Market

The tokenized land is listed for sale on the secondary market at $2 million, reflecting an expected appreciation of the land plot when prospected for a maturation period of 2-5 years.

To list the tokenized land on the secondary market, a 1-of-1 non-fungible token is issued by the originator. Built upon the 1x1 model, this 1-of-1 NFT is a ‘‘meta-token’’ that represents a 100% share of the land:

• The meta-token is listed by the originator for sale for $2 million (2m USDC) on an OTC marketplace (e.g., OpenSea).

• The sale of such meta-token — which can occur permissionlessly at any time — represents the sale of the land on the secondary market and, subsequently, the end of the lifecycle of the tokenized shares representing the land.

Second Stage

Event 1: Secondary Market Sale

Listed for 2m USDC, the meta-token that represents a 100% share of the tokenized land becomes sold on the secondary market.

Event 2: End of Shares Lifecycle

The sell of the meta-token represents the end of the tokenized shares lifecycle.

After Event 1, shareholders shift their position from having ownership rights over a land to having redemption rights over the capital from the sale of such a land.

Event 3: End of LP

The originator announces the end date of the LP and then removes the liquidity.

Event 4: Redemption & Burning

Shareholders redeem their shares equivalent value by depositing them in a contract created by the originator. The contract burns the tokens received and sends the equivalent USDC value for the sender.

Annotations

• Oracle-free: The tokenization framework requires no external oracles, relying entirely on market forces acting over the Uniswap LP. The framework’s economic health is expected based on market consensus, which tends to use as base price the underlying value of the tokenized asset to define the tokenization market cap and, subsequently, the value of each tokenized share. It is expected that the market uses metrics such as the value paid for the asset and the value that the asset is listed on the secondary market.

• Curated assets: Seeking economic viability and sustainability for the tokenization framework, it is expected that originators only tokenize deeply curated non-fungible assets. This means non-fungible assets that can reasonably retain or increase in value over a specific period of time, such as lands, condos, houses, artworks, and rare items.

  USD as a unit of account: Using a USD-pegged stablecoin as a pair and the USD as a unit of account is pivotal for the functionality of the tokenization framework. The framework and the subsequent RWA-backed assets generated are envisioned as a hedge against the USD depreciation, not ETH. In addition, using USD as a unit of account mitigates volatility and enhances stability.

• LP fees: The framework is based on Uniswap V3 LPs, which enables originators to charge a 1% fee on transactions incurred in the pool. Those fees can be considered the core stream of value for originators, earning USDC fees on buys and SHARE fees on sells.

• Governance: The tokenization framework can also include token-gated governance established between shareholders and originator.

Benefits for Investors

Accessibility: Traditional investments on non-fungible RWAs are illiquid, requiring significant capital and time to buy or sell. Tokenization allows for fractional ownership, enabling investors to buy and sell smaller portions of the asset, thus enhancing liquidity. This opens up investment opportunities to a broader audience.

Provenance: Text-based tokens built upon the 1x1 model provide a unique way to empower ownership provenance for shareholders. Text-based tokens are, from an investor perspective, akin to owning traditional physical certificates of ownership rights.

Benefits for Originators

Initial liquidity and profit: The originator acquires a non-fungible asset for $1 million and proceeds to pre-sell 90% of this non-fungible asset for $1 million, effectively covering the initial investment. As a result, the originator now has $1 million in cash and retains 10% of the real estate asset.

Market making with profit: The originator uses this retained 10% and an equivalent amount in cash to bootstrap the liquidity pool. By investing their "profit" to market-make the asset, they ensure that the asset has liquidity and can be traded by investors.

Earning LP fees: By providing liquidity, the originator earns fees from the transactions that occur within the liquidity pool. This provides an ongoing revenue stream throughout the lifecycle of the tokenized asset.

Final payout: At the end of the asset's lifecycle, when the RWA is sold on the secondary market, the originator, as the owner of the LP, can take the liquidity pooled in the LP along with the fees earned during the lifecycle of the tokenized asset. This includes both the liquidity initially provided and the transaction fees accumulated over time.

In essence, the originator is able to purchase an asset for $1 million, tokenize and pre-sell 90% of it to recover the initial investment, retain 10% of the asset, use this retained portion to create market liquidity, and ultimately profit from the fees generated in the market.

Conclusion

Bridge the world onto Ethereum.