The Problem

Traditional finance is moving on-chain for efficiency. We’ve seen how Franklin Templeton launched its Franklin OnChain United States Government Money Fund with $BENJI on Stellar, and how KKR is tokenising a part of its private equity fund on Avalanche. Even BlackRock is launching its first tokenised fund on Ethereum. It’s not long before other institutions start following suit.

The problem is, that the onboarding and verification processes (which include Know Your Customer (KYC) checks and accredited investor qualification) for new users are still based on the old Web2 approach: they’re repetitive, and manual. This is problematic to say the least, since 40% of potential users will abandon the onboarding process if it takes longer than ten minutes [1].

This results in the loss of trillions of dollars (3.3 trillion in 2019 alone [2]) of potential revenue. The need for a seamless, but compliant Web3 onboarding process with portable credentials is long overdue.

What Problems Are Tokenised Fund Institutions Facing?

Institutions need to keep investor fees as low as possible to stay relevant in an increasingly competitive market. This explains why so many of them are choosing to move on-chain.

However, this is merely one part of the equation. High compliance costs across the industry, driven by repetitive and siloed processes, remain a significant concern. These inefficiencies create friction, reduce investor mobility, increase Customer Acquisition Costs (CAC), and hinder full operational efficiency for both institutions and users.

Additionally, tokenised funds are still operating in a gated and siloed fashion. This greatly reduces the number of potential investors that can be acquired. A cross-chain approach would significantly increase this number.

What Are We Proposing?

0xAuth proposes a frictionless onboarding and verification process along with portable investor credentials — while boasting minimal compliance costs. The key features of our solution include:

• A compliant, automated verification process: 0xAuth verifies accredited investors using trusted off-chain oracles in an automated fashion. This includes Know Your Customer (KYC) and Know Your Business (KYB) checks via Plaid. Plaid enables investors to verify their real-world assets, such as bank and brokerage accounts, and undergo Anti-Money Laundering (AML) compliance and Political Exposed Person (PEP) screening. Additionally, 0xAuth leverages Vezgo, which allows investors to verify their digital assets such as crypto holdings, centralised exchange (CEX) and decentralised exchange (DEX) accounts, and non-fungible token (NFT) holdings.
• Portable, verifiable credentials: 0xAuth deploys a digital identity contract (ERC-734) on-chain when a new user onboards for the first time. After the verification process is complete, the user is issued two verifiable credentials: off-chain, using the W3C VC standard, and on-chain, using the ERC-735 standard (which are linked to the user’s digital identity contract). .
• Conditional wallet connectivity: If a platform (such as a private investment fund) wants to verify the user’s eligibility, it can simply integrate with 0xAuth and check their verifiable credentials to conditionally allow or block access.
• Zero-knowledge proofs: If a platform needs to further verify a user’s personal information, it can utilise JSON-LD-based zero-knowledge proofs (ZKPs) to verify off-chain (W3C) credentials. This approach allows for selective disclosure, enabling users to share specific pieces of information without revealing their entire identity or related data. As an example, an institution can request that a user verify their country of residence in order to provide them access to a private staking pool that is restricted to European residents.
  • In the future, we’d like to allow these off-chain (W3C) credentials to be verified on-chain as well. In this case, we would deploy a ZKP verifier contract which would support criteria selection (ZK predicates) and selective disclosure requests. Any institutional contracts can simply call our contract to verify ZK proofs on-chain.

How Does Arbitrum Fit into the Picture?

Arbitrum is already an attractive destination chain for tokenisation because of its efficiency. 0xAuth can increase this attractiveness even further by offering a seamless, yet compliant solution for investor onboarding and verification — which will ultimately help financial institutions stay competitive. Additionally, breaking down siloes means that the network as a whole will see increased network activity as participants from other chains flock to Arbitrum.

As such, our goal for this grant is to bring 0xAuth support to the Arbitrum ecosystem. This includes the core functionality described above along with dashboards that financial institutions can use.

Current Traction

We’ve planned a pilot with Franklin Templeton and WisdomTree (on the Stellar network) to make their on-chain products available to more eligible users via a web interface (instead of just a mobile app).

We’re also setting up an industry-wide proof-of-concept in collaboration with Chainlink, called Project DAVID. This includes key players such as Fidelity International, Sygnum, vanEck Europe, UOB, and Deloitte under the supervision of the ADGM in Abu Dhabi to create interoperability and compliance between tokenised funds, platforms, chains and jurisdictions. Invited participants also include Citi.

References

Project David Pitch Deck

Description: Our pitch deck for the Project David proof-of-concept.

Link: https://docs.google.com/presentation/d/1siNMA0xAJzKlu5jCdrOkCgpMuJmsxyI0WI5zPtHUlFk/edit?usp=sharing

Roadmap

Description: A long-term roadmap, which lists planned improvements and potential features.

Link: https://antematter.notion.site/0xAuth-Roadmap-3d37fc3dd17146938982402a364727e3?pvs=4

Pitch Deck

Description: Our pitch deck, which helps illustrate the idea for 0xAuth on a holistic level.

Link: https://docsend.com/v/yrmz2/0xauth-tokenized-funds

Glossary

[1] https://thepaypers.com/payments-general/fis-have-14-minutes-and-20-seconds-to-onboard-customers-signicat-finds--780846

[2] https://resources.fenergo.com/newsroom/global-business-commercial-banking-market-sees-3-3-trillion-in-losses-due-to-operational-inefficiencies