The Fungible Reserve Standard: A Deterministic Framework for Encoding Carrying Costs in Asset-Backed Tokens
It addresses the structural negative carry of tokenized real-world assets for DeFi protocols and token holders, but the approach is incremental, building on existing tokenization models.
The paper proposes the Fungible Reserve Standard (FRS), a deterministic token design framework that encodes carrying costs (e.g., custody, insurance) directly into on-chain logic for asset-backed tokens, preserving ERC-20 composability and avoiding token rebasing. The framework introduces a decreasing asset-per-token variable and a supply reconciliation mechanism to maintain holder balances.
The tokenization of real-world assets (RWAs) has emerged as a transformative application of blockchain technology, with market projections estimating trillions of dollars in tokenized assets within the coming decade. However, a fundamental challenge remains unaddressed: physical assets such as precious metals, stored commodities, and warehoused goods incur structural negative carry -- custody, insurance, and audit costs that accumulate over time. While existing tokenization models have successfully established the market for digital gold and treasuries, they typically manage operational costs at the issuer level. The FRS introduces a framework to bring these economics directly on-chain, avoiding mechanisms such as token rebasing that compromise fungibility and composability with decentralized finance (DeFi) protocols. This paper proposes the Fungible Reserve Standard (FRS), a deterministic token design framework that encodes carrying costs transparently into on-chain logic. The FRS introduces an asset-per-token variable q(t) that decreases according to a predefined annualized carrying cost rate, coupled with a supply reconciliation mechanism that preserves holder balances and ERC-20 composability. While mathematically inspired by the daily expense ratio accrual in traditional asset management -- which often embed centralized profit margins -- the FRS design specifically encodes actual operational carrying costs to provide pure institutional-grade accounting clarity without compromising DeFi compatibility. The framework is asset-agnostic and applicable to any real-world asset with positive, predictable holding costs.