How we more than doubled the efficiency of the ERC3643 (TREX) standard

At NYALA we specialize in creating and distributing securities that comply with the German Electronic Securities Act and doing this at scale.

To achieve this, NYALA decided in 2023 to implement the ERC3643 security token standard, based largely on its crypto securities registrar’s recommendation, which comes with a rich set of permissions and controls, and is perfectly positioned to be the default standard for tokenized securities.

The standard itself is fairly complex and the question of how to best implement it is not trivial at all, especially since our registrar needs to comply with the German Electronic Securities Act (eWpG).

In order to keep up with an evolving client landscape We recently upgraded the way in which NYALA utilizes the standard, resulting in significant efficiency gains. In this post, we won’t go into the technical details but suffice it to say that there are at least 2 possible ways in which investors can interact with securities on-chain:

1. Token-based Permissions: Each investor must get onboarded and whitelisted for each token they invest in. This allows the onboarding institution to monitor permissions in a very granular fashion. Investor A - call her Jane Doe - needs to go through an on-chain authorization process every single time she invests, resulting in many on-chain operations required to grant her access to the token(s) she ends up investing in.  

2. Asset Class-based Permissions: Each investor gets authorized once per asset class they invest in, and their on-chain ID is established, via an identity contract that is deployed. This is less granular – the fundamental thought being that it suffices for Jane Doe to pass KYC/AML or any special type of on-chain accreditation once to be eligible to invest in a variety of securities that belong to the same asset class. The definition of “asset class” is up to the onboarding institution and can be expanded or restricted as needed.

Compare this to the traditional world of banking. In scenario (1) your banker would “whitelist” or clear you as a client to invest in a specific risky security, for example Nvidia shares. Now, suppose you want to invest in Amazon shares a few weeks later, you would have to get cleared again by your banker – maybe that is a little too much clearing for your taste!  

The other approach, (2), mirrors a little more closely what your banker might actually do. They will “whitelist” you for shares and then you can invest in shares, at least up to a certain limit. But if you would like to later invest in derivatives, an investment which is associated with a much higher risk, they would have to clear you again for that asset class.  

NYALA and its registrar Smart Registry decided to implement this change and move from (1) to (2). One positive outcome of this refactoring effort is that NYALA reduced the amount on-chain operations by about 60%. This is significant, especially since no matter how fast and reliable they have become, on-chain operations are still the bottleneck within the tokenization process.  

The other change is that our tokenization engine, being battle-tested and capable of handling a greater volume of issuances and transfers, is increasingly making use of bulk on-chain transfers in lieu of individual on-chain transfers. This also streamlines the distribution process. At NYALA we prepare for the time, soon to come, when there are multiple issuances a day.