The ability to connect the physical and on-chain worlds has long been one of the holy grails of blockchain. Though to date, attempts to bridge these worlds have been centralized, ad-hoc, and rife with misaligned incentives.

At 4K, we’re building a decentralized protocol for connecting the on-chain and physical worlds. While a centralized approach would be easier, we believe that only a decentralized approach is capable of making physical assets a new, trusted web3 primitive. A decentralized approach has several critical advantages:

• Exponential growth: Whereas, a centralized approach bottlenecks the rate at which assets can be brought on-chain,  a decentralized network is far better equipped to handle a large volume of diverse physical asset classes.
• A common standard: To bring a physical asset on-chain we need to answer a few basic questions - Is this token actually redeemable for the physical asset? Is this asset authentic? How much is this asset worth? These questions should be answered in a consistent way so that physical assets can be systematically interacted with across dApps.
• Aligned incentives: The core problem with bringing physical assets on-chain is that the party holding the physical asset is likely not the same party who owns the physically-backed token. With a decentralized protocol, the party holding the asset is held accountable for losing, damaging, and misrepresenting the physical asset. They are also compensated for the cost and risk of safeguarding that asset.

The heart of the 4K protocol is the physical guardian protocol, which ensures that a physically-backed token is truly backed by a physical asset.

Here’s how it works:

• Physical assets (wine, watches, real estate, etc) are securely held by guardians who guarantee that the asset’s owner’s physically-backed token can be burned in exchange for the physical asset at any time.
• Guardians are compensated for the cost and risk of holding physical assets with guardian fees. If an asset owner does not pay their guardian fee, the physically-backed token is sold in an English-style auction.
• Guardians are required to prove proof-of-assets to prove that they are actually holding the physical asset and that its condition has not degraded. In the event of a loss or damage claim, asset owners are immediately compensated through the staking pool. Guardians are required to stake and stakers earn governance rights, 4K token emissions, and a percentage of protocol fees. Payouts from the staking pool are a mechanism to provide immediate resolution for claims.

The physical-guardian protocol is what enables one to believe a physically-backed token can actually be redeemed for the original physical asset without needing to trust any single centralized entity.

The 4K protocol is chain agnostic. We will build the 4K Protocol governance and accountability system on Ethereum, though physically-backed 4K tokens will be implemented across all major layer 1s and 2s.

In addition to the physical-guardian protocol, the 4K Protocol will later include an authentication protocol and valuation protocol. We’re ultimately building a shared language for deFi and dApps to systematically interact with physical assets on-chain.

By introducing chain-agnostic shared language for interacting with physical assets, we’re going to usher in a new generation of dApps. For example, imagine:

• A deFi ecosystem where physical assets are a composable primitive (e.g. a liquidity pool for ETH / Rolexes, fractionalized real-estate, on-chain loans on wine collections).
• A physically-backed stablecoin where the central bank was held accountable for misrepresenting their reserves
• Social clubs, events, and incentive programs based on ownership of a physical asset
• Decentralized marketplaces trading assets with a tiny fraction of the fees of traditional marketplaces and on-chain provenance.

Ultimately, the web3 ecosystem is going to build dApps on top of the 4K protocol to enable use cases that we can’t imagine. If you’re interested in either building on top of the 4K Protocol or joining the 4K team, say hi at developer@4k.com.