Tokenized assets, real trust: How the Rules Engine helped enforce on-chain backing for RWA tokens

The Challenge

For FungibleX, bridging real world assets and digital infrastructure creates challenges. They need the tools to bring the safety and stability users expect from real-world assets into the digital realm.

“We are working to bridge TradFi with Crypto, but the real challenge lies in programming complex compliance, regulatory, security, and legal requirements into smart contracts - particularly when those requirements are constantly evolving.” - FungibleX

FungibleX wanted to provide real-time, on-chain proof of reserves, enhancing transparency for GEMtrust’s users. They also wanted to implement digital commodity controls similar to those used to manage trading of real world commodities, not only to meet legal requirements but also to provide users the safety and trust they were used to in the TradFi context.

FungibleX leveraged Forte’s Rules Engine to bridge this gap.

The Approach

Ensuring Sufficient Collateral

• Ensuring sufficient underlying asset value

• On-chain tracker of asset values

First, they wanted to design a mechanism to verify and maintain the solvency of GEMtrust’s tokenized gemstone assets. The challenge was creating an on-chain safeguard that prevents token value over-issuance beyond the reserve value - ensuring that new mints are always backed by sufficient underlying asset value.

Using the Rules Engine, FungibleX created an on-chain tracker that maintains accurate bookkeeping of gems asset values. This tracker functions as a master ledger, storing real-time data and automatically updating to account for new mints, burns, and appraisals. FungibleX then integrated the tracker with a safeguard rule that prevents mints in excess of the underlying gemstone value. Together, these rules ensure digital tokens maintain 1:1 asset backing with real gemstone reserves.

By embedding these rules on-chain, FungibleX built trust through enhanced stability and transparency. These automatic guardrails protect against token inflation, reducing risk for tokenholders and counterparties while enabling independent verification of the audit trail and token to asset correlation. This transparency gives institutions the confidence to adopt tokenization and customers the assurance to engage with tokenized assets.

Compliance Safeguards

• KYC verification

Bringing real world assets on-chain requires bringing real world compliance safeguards on-chain as well. FungibleX used the Rules Engine to create clear rules that enforced their compliance frameworks.

First, they implemented a screening process to block transactions from wallets or entities that are on the US Office of Foreign Assets Control (OFAC) sanctions list. Any token purchase transfer, mint or redemption involving a sanctioned wallet is automatically blocked. This works in conjunction with a tiered Know Your Customer (KYC) identity verification rule that prompts users to complete KYC verification based on transaction value prior to any token interaction.

Together, these rules create a platform that is compliant by design, with built-in checkpoints that help fight bad actors and manage risky transactions. By decoupling the compliance logic from the token smart contract logic, the system maintains flexibility in implementation. This reduces risk both from malicious activity and from regulatory penalties that can result from insufficient compliance controls while enhancing user trust. The Rules Engine’s flexibility as a tool allows for a future-proof business model that is adaptable to regulatory changes or expansion to new markets.

Operational Optimization

• Streamlined audit and regulatory reporting processes

• Reduced development time

FungibleX found that the benefits of using the Rules Engine went beyond the function of the rules. Using the Rules Engine improved operational clarity and efficiency. Transparent rules that are clearly defined on-chain streamline the audit and regulatory reporting processes. By allowing FungibleX to present the rules of the platform in a plain way that simplifies the complexity of Solidity for non-coders, Forte makes it easier for auditors and users alike to verify the credibility of GEMtrust.

“Having a tool that lets you list rules simply and present them clearly to auditors solves this problem—it effectively replaces the contract middleman.” - FungibleX

The simplicity of the Rules Engine also helped optimize FungibleX’s internal operations, not just in their work with regulators and auditors. The easy to use tools reduced time spent coding, letting FungibleX set up their platform’s guardrails quickly and efficiently. Further, by implementing these processes automatically on-chain, FungibleX eliminated the potential for human error and reduced overhead and accounting costs. By simplifying and streamlining the development and auditing process, FungibleX created a stable foundation to build on.