🪙 Tokenized Units

Unlike other fund tokenization platforms that add blockchain complexity to the already convoluted processes of traditional investment funds, Fume brings the entire administration process on-chain, simplifying fund management by removing intermediaries. Since the investor registry is maintained directly on the blockchain, the investment vehicle’s units—whether tokenized fund units or tokenized notes—are inherently tokenized.

ERC-6909 Standard

Fume utilizes the ERC-6909 token standard, which is a minimal and gas-efficient approach for managing multiple types of tokens within a single contract. It provides a simplified alternative to the more complex ERC-1155 multi-token standard and is already being used by renowned projects such as Uniswap V4.

This allows us to track on a individual investment level characteristics such as high watermark, fees and lockup period. Each investment effectively becomes its own share class.

Why Not ERC-20?

While ERC-20 tokens are typically used for fungible assets, they are not well-suited for tokenizing fund units. Although fund units might appear fungible, they often have key distinctions:

• Subscription Timing: Investors subscribing at different times might have varying lock-up periods.
• Fee Structures: Different investors may be subject to different entry/exit fees.
• High-Water Marks: Performance fees can vary depending on the specific investment timeline, requiring a unique high-water mark for each investment.

For these reasons, Fume needs a mechanism that allows differentiation between unit series to ensure fair treatment for all investors. ERC-6909 offers the flexibility to achieve this by treating each unit series as a distinct asset, while still allowing for cohesive and efficient management.

Equalization vs series: two approaches to fair accounting

Investors enter a fund at different times and prices, so the protocol needs a way to keep things fair. Fume supports two approaches, both built on ERC-6909:

Equalization

The protocol recalculates and adjusts all investor positions each time the NAV is updated. An investor who entered at a higher price is not diluted by someone who entered lower, and vice versa. Performance fees and high-water marks are tracked per investor, even though all units are in the same pool. This is the default and works well for most funds.

Series

Each wave of investors gets its own set of units, a "series." Each series has its own entry price, high-water mark, and fee history, so you can see exactly how each cohort performed. When terms converge (e.g., after performance fees are charged), series can be merged, simplifying the register while preserving the audit trail.

Both methods are fully on-chain.

Security Tokens

The tokenized fund units are considered security tokens, which means they are subject to regulatory restrictions. These tokens cannot be transferred as freely as standard cryptocurrencies or NFTs due to compliance requirements. For regulatory reasons, the fund manager must always know who the unit-holders are, ensuring that the fund remains compliant with applicable laws.

Secondary transfers of tokenized units are allowed, but only among already whitelisted (KYC'ed) wallets that have been approved by the fund manager. This guarantees that all holders of the tokenized units meet compliance requirements before any transfer occurs.

Unit transfers

Fund managers can transfer tokenized units between whitelisted wallets, for example when an investor changes their wallet or moves units to another approved party. All transfers are recorded on-chain and appear in the fund's unit register.