--- title: "🔧 How Does It Work?" description: "The architecture of the Tokenization Engine: supported networks, smart contract functions, and accounting methods." canonical: "https://www.fume.finance/docs/tokenization/whitepaper/how-does-it-work" --- # 🔧 How Does It Work? (/docs/tokenization/whitepaper/how-does-it-work) Fume is a web application that operates on top of its proprietary on-chain protocol, which is built on EVM-compatible smart contracts. The platform currently supports [`Ethereum`](https://www.ethereum.org/), [`Arbitrum One`](https://arbitrum.io/), [`Base`](https://www.base.org/) , and [BNB Smart Chain](https://www.bnbchain.org/en/bnb-smart-chain), with Arbitrum being the preferred choice due to its lower cost and faster execution. ## Investor Interaction [#investor-interaction] Investors can participate in an on-chain fund either by investing with stablecoins or through traditional fiat currencies. The platform removes many of the barriers typically associated with blockchain-based investments. ## Fund Manager Tools [#fund-manager-tools] For fund managers, Fume offers full flexibility in managing assets. The manager can connect any preferred custody solution to the on-chain fund to receive subscriptions and manage the underlying assets. The funds stay stored and managed securely, and Fume never touches the money itself. ## Automated Protocol Functions [#automated-protocol-functions] The smart contracts handle: * **Tokenized Fund Units**: The protocol issues tokenized units of the fund, representing each investor's ownership. * **NAV Calculation**: The smart contracts calculate the Net Asset Value of the fund. Every calculation is recorded on-chain. * **Position Adjustment**: After each NAV calculation, the protocol adjusts investor positions to keep things fair. This can happen through equalization (all positions rebalanced in one step) or series-based tracking (each investment cohort managed independently). Either way, investors who entered at different times and prices are treated correctly. * **Fee Computation**: The protocol computes and extracts performance and management fees automatically. Because these run through smart contracts, there are no manual errors or extra fees. ## Accounting methods [#accounting-methods] The Tokenization Engine supports two ways of handling the complexities that arise when multiple investors enter a fund at different times and prices: * **Equalization-Based Accounting**: The default. Each time the NAV is calculated, the protocol adjusts all investor positions so that everyone holds the correct value. Investors who joined at a higher price are not unfairly diluted by those who joined at a lower price, and vice versa. High-water marks and performance fees are tracked per investor, even though all units are part of the same pool. * **Series-Based Accounting**: An alternative for funds that need to track each investor group separately. Each time new investors subscribe, they go into their own "series," a distinct cohort with its own entry price, high-water mark, and fee calculations. When the terms of different series converge (e.g., after a performance fee crystallization), they can be merged into one. This makes it straightforward for fund managers and auditors to trace each cohort's history. Both methods use the ERC-6909 token standard, which manages multiple unit types within a single smart contract. ## Learn more about the components: [#learn-more-about-the-components]