SMART Protocol

A comprehensive Solidity smart contract framework for regulatory-compliant tokenization of real-world assets (RWAs)

What is SettleMint's SMART Protocol?

SMART (SettleMint Adaptable Regulated Token) Protocol is an advanced, modular smart contract framework designed and developed by SettleMint for creating regulatory-compliant security tokens and tokenizing real-world assets. Built as a derivation of ERC-3643 with ERC-20 foundations using OpenZeppelin, it provides a complete infrastructure for:

Security Token Issuance: ERC-3643 derived and ERC-20 compliant tokens for regulated financial instruments
Asset Tokenization: Bonds, equity shares, deposits, funds, and stablecoins
Advanced Identity Management: On-chain KYC/AML compliance with ERC-734/735 identities and logical expressions for complex verification rules
Regulatory Compliance: Modular compliance rules for different jurisdictions
DeFi Integration: Full ERC-20 compatibility for seamless ecosystem integration

Key Highlights of SMART

ERC20 Compliance: Fully implements ERC20 and ERC20Upgradeable, ensuring compatibility with Ethereum tooling and DeFi ecosystems.
Externally Modular Architecture: SMART uses composable extensions (e.g., SMARTBurnable, SMARTCollateral) in a plug-and-play model.
Token-Configurable Compliance: SMART tokens can be configured to use specific modular rules and parameters without needing custom compliance contracts.
Token-Agnostic Identity Verification: Identity registry remains reusable across tokens and use cases—tokens dynamically pass required claim topics into the verification logic.
Authorization Agnostic: SMART is compatible with any authorization logic via hooks (e.g., OpenZeppelin AccessControl).
ERC-2771 Meta-Transaction Support: Compatible with trusted forwarders for gasless transactions and improved UX.
Upgradeable & Non-Upgradeable Support: SMART supports both upgradeable (proxy-based) and fixed (non-upgradeable) token deployments—giving issuers full control over token mutability.
KYC is optional: SMART supports both regulated and unregulated assets. Tokens can opt into identity verification (KYC/AML) or operate permissionlessly—ideal for both security tokens and cryptocurrencies.
Built-in ERC-165 Interface Detection: Every SMART token implements ERC-165, allowing external systems to query which capabilities (burnable, redeemable, etc.) a token supports—improving composability and tooling.
Two-Step Identity Recovery Flow: If a user loses access to their wallet, recovery happens in two stages: first, a new identity is registered for the new wallet via the Identity Registry (by a manager) and the relationship is tracked; then, the user reclaims tokens from the lost wallet after the token validates the recovery with the Identity Registry—offering secure and structured recovery.

Architecture Overview

SMART Protocol consists of three main layers:

1. Token Layer - Smart contract tokens with configurable compliance

2. Compliance Layer - Orchestration engine with modular rules

3. Identity Layer - On-chain identity management and verification

Key Insight: The compliance contract acts as an orchestration engine, executing different modules based on each token's configuration. This allows multiple tokens to share the same compliance infrastructure while having completely different compliance requirements.

ERC Standards Implemented

SMART Protocol implements multiple Ethereum standards to provide comprehensive functionality:

ERC-20: Fungible Token Standard

Full Compatibility: Complete ERC-20 and ERC-20 Metadata implementation
DeFi Ready: Works seamlessly with DEXs, lending protocols, and wallets
Extensions: Transfer hooks, pausable transfers, burnable tokens
Upgradeability: UUPS proxy pattern support for contract upgrades

ERC-3643: T-REX Security Token Standard

Regulatory Compliance: Built-in KYC/AML and jurisdiction-specific rules
Transfer Restrictions: Conditional transfers based on investor eligibility
Identity Verification: Integration with trusted identity providers
Compliance Modules: Pluggable rules for different regulatory requirements
Components:
- Identity Registry for investor management
- Compliance validation engine
- Trusted issuers registry for claim verification
- Claim topics for required documentation types

ERC-734: Key Holder Standard

On-chain Identity: Self-sovereign identity management
Multi-purpose Keys: Management, action, claim signing, and encryption keys
Execution Framework: Multi-signature execution with key-based approval
Key Management: Add, remove, and replace keys with proper authorization

ERC-735: Claim Holder Standard

Verifiable Claims: On-chain attestations about identity attributes
Trusted Issuers: Claims validated by authorized third parties
Topic-based Organization: Claims categorized by topics (KYC, nationality, etc.)
Revocation Support: Ability to revoke outdated or invalid claims

ERC-2771: Meta-Transaction Standard

Gasless Transactions: Users can transact without holding ETH
Improved UX: Third-party relayers can sponsor transaction costs
Trusted Forwarders: Secure delegation of transaction execution
Native Integration: Built into all SMART Protocol contracts

Token Layer

SMART Token

The main security token contract that derives from ERC-3643 principles while maintaining full ERC-20 compatibility through OpenZeppelin. Available in two variants:

SMART.sol: Non-upgradeable implementation
SMARTUpgradeable.sol: UUPS upgradeable implementation

Token Extensions

Each extension adds specific functionality through well-defined interfaces:

Administrative Extensions

Burnable Extension (extensions/burnable/)
- Purpose: Allows designated administrators to burn tokens from any account
- Use Cases: Regulatory compliance, token destruction, supply management
- Key Functions: burn(address account, uint256 amount)
- Access Control: Supply Manager role required
Pausable Extension (extensions/pausable/)
- Purpose: Emergency pause functionality for all token transfers
- Use Cases: Security incidents, regulatory orders, system maintenance
- Key Functions: pause(), unpause()
- Access Control: Token Admin role required
Custodian Extension (extensions/custodian/)
- Purpose: Freeze addresses and force transfers for compliance
- Use Cases: Legal orders, sanctions compliance, dispute resolution
- Key Functions: freeze(address account), forceTransfer(from, to, amount)
- Access Control: Compliance Manager role required

User-Facing Extensions

Redeemable Extension (extensions/redeemable/)
- Purpose: Users can burn their own tokens (self-redemption)
- Use Cases: Token buybacks, voluntary redemptions, exit mechanisms
- Key Functions: redeem(uint256 amount)
- Access Control: Token holders can redeem their own tokens
Yield Extension (extensions/yield/)
- Purpose: Distribute dividends or yield to token holders
- Use Cases: Dividend payments, profit sharing, interest distribution
- Key Functions: distributeYield(uint256 totalAmount), claimYield()
- Access Control: Yield Manager role for distribution

Data & Analytics Extensions

Historical Balances Extension (extensions/historical/)
- Purpose: Query historical balance data at specific blocks
- Use Cases: Snapshot governance, historical reporting, audit trails
- Key Functions: balanceOfAt(address account, uint256 blockNumber)
- Features: Automatic snapshot creation on transfers

Supply Management Extensions

Capped Extension (extensions/capped/)
- Purpose: Enforce maximum token supply limits
- Use Cases: Fixed supply tokens, inflation control, tokenomics
- Key Functions: cap(), totalSupply()
- Features: Prevents minting beyond cap, immutable once set
Collateral Extension (extensions/collateral/)
- Purpose: Require collateral backing for token issuance
- Use Cases: Asset-backed tokens, stablecoins, secured instruments
- Key Functions: Collateral managed through token's OnchainID identity
- Features: Each token has its own identity contract for collateral management

Compliance Layer

Overview

The diagram shows a clean separation of concerns:

Token Layer
- Multiple tokens can exist independently
- Each token defines its own compliance requirements
- Tokens use the shared compliance contract for orchestration
Compliance Contract
- Single orchestration engine shared by all tokens
- Executes compliance checks based on token-specific configuration
  - Routes requests to appropriate modules
Module Layer
- Shared compliance modules with global configuration
- Each module can be used by multiple tokens with different parameters
- Modules contain both global settings and token-specific configuration

Compliance Contract

Orchestrates compliance checks as an engine based on token configuration:

Executes modules configured on each specific token
Performs pre-transfer validation using token's module list
Updates post-transfer state for configured modules
No modules stored directly - purely orchestration engine

Compliance Modules

The SMART protocol provides a flexible, extensible compliance module system with both default modules and support for custom implementations. The system supports country restrictions, identity verification with logical expressions, transfer limits, time-based restrictions, and more.

Key highlights:

Advanced Identity Verification: Complex logical expressions beyond simple AND-only requirements
Flexible Configuration: Global infrastructure with per-token parameters
Modular Architecture: Mix and match modules based on regulatory requirements
Extensible Framework: Create custom modules for specific compliance needs

Available module categories:

Country-based: Allow/block lists for jurisdictions
Identity-based: Verification, allow/block lists for identities and addresses
Transfer & Supply: Token supply limits, investor count restrictions
Time-based: Lock-up periods, holding requirements

Identity Layer

Identity Registry

Central registry mapping wallet addresses to identity contracts. Features:

Stores identity contract addresses for each wallet
Manages identity verification status
Handles wallet recovery mechanisms
Supports identity transfers

Trusted Issuers Registry

Manages trusted entities that can issue identity claims:

Stores trusted issuer addresses
Maps issuers to claim topics they can attest
Supports multiple issuers per topic

Topic Scheme Registry

Defines the claim topics available for compliance:

Lists valid claim topics globally
Maps topics to verification requirements
Shared registry across all tokens

2 step recovery mechanism

Complete System Flow

Now that we've covered all three layers, here's how they work together during a token transfer:

Token Transfer Flow

Transfer Validation Steps

Identity Verification
- Verify receiver has valid identity contract and required claims
- Sender verification is assumed (already owns tokens, so was previously verified)
Compliance Validation
- Compliance engine runs through modules configured on the specific token
- Each configured module performs its specific checks
- All configured modules must approve for transfer to proceed
Balance Updates
- Execute standard ERC-20 transfer
- Update compliance module states
- Emit transfer events

ERC-3643 vs SMART Protocol

Aspect	ERC-3643	SMART Protocol	Notes
ERC20 Compatibility	Partial / constrained	Fully `ERC20` and `ERC20Upgradeable` compliant	Ensures full compatibility with DeFi and wallets
Upgradeability	Centralized via Implementation Authority	Supported via UUPS; system-agnostic (project decides upgrade pattern)	SMART provides the option but doesn't enforce a pattern
Modularity	Partially modular	Modular by default (OpenZeppelin extension pattern)	SMARTBurnable, SMARTRedeemable, SMARTPausable, etc.
Identity / Compliance Contract Reuse	Typically one-off per token	Reusable across all tokens	Efficient architecture, simplifies ecosystem-wide compliance
Compliance Model	Single compliance contract, may be modular	Fully modular compliance rules; also supports monolithic if desired	Flexible based on project use case
Compliance Configuration	No token-specific configuration	Rule-specific parameters configurable per token	Enables rule reuse with different behaviors
Claim Topics Storage	External Claim Topics Registry	Defined and stored per token	Improves clarity and portability of tokens
Identity Verification	Simple AND-only logic for required topics	Advanced logical expressions with AND/OR/NOT	Enables complex rules like "CONTRACT OR (KYC AND AML)"
KYC Optional	Implied as required	Optional per token, part of the modular compliance	Allows issuing cryptocurrencies or unrestricted tokens
Authorization	Agent-based role system	Access-control agnostic	Supports OpenZeppelin `AccessControl`, custom roles, or hybrid models
Burning Logic	Owner-initiated only (`burn(user, amount)`)	`SMARTBurnable` (admin burn) + `SMARTRedeemable` (self-burn)	Enables more flexible redemption logic (e.g. for bonds)
Meta-Transaction Support	Not specified	Fully ERC-2771 compatible (trusted forwarders)	Enables gasless transactions and better UX
Immutability	Name and symbol mutable	Immutable following ERC20 standard	Avoids confusion and aligns with token standards
Interface Detection (ERC-165)	Not part of standard	Built-in ERC-165 support	Enables introspection: e.g., query if token supports Burnable, etc.
Token Recovery Flow	Custodian-based recovery	Two-step: identity registry manager handles recovery + user reclaims tokens	SMART separates identity and asset recovery for better security and UX

Common Use Cases

Use Case	Asset Type	Key Extensions	Compliance Requirements	Explanation
Corporate Bonds	SMARTBond	Yield, Redeemable, Pausable	Accredited investor, KYC	Tokenizes corporate debt securities enabling fractional ownership, dividend/yield distribution to investors, emergency halts on trading, and easy redemption options.
Real Estate Shares	SMARTEquity	Custodian, Historical Balances	KYC, Jurisdiction restrictions	Enables fractional ownership in real estate assets with investor identity verification, jurisdictional compliance, and historical ownership tracking for audits.
Tokenized Deposits	SMARTDeposit	Yield, Capped	Bank verification, deposit insurance	Digitizes deposits with capped supply and yield distribution, integrating bank-level identity verification and deposit insurance requirements in compliance with laws.
Investment Funds	SMARTFund	Yield, Custodian, Burnable	Fund prospectus, investor suitability	Tokenizes shares in mutual or venture funds allowing investor accreditation checks, ongoing yield distribution, and token burn for fund redemptions or rebalancing.
Regulatory Stablecoins	SMARTStableCoin	Pausable, Custodian	Money transmitter license	Represents fiat assets on-chain with pause and freeze features for regulatory control and compliance with money transmitter licensing for stablecoin operations.
Equity Shares Tokenization	SMARTEquity	Custodian, Historical Balances, Capped	KYC, Securities laws compliance	Digitizes company shares as compliant security tokens enabling real-time transfers, shareholder voting, dividends, and regulatory reporting under securities laws.
Commodity Tokens	SMARTCommodity	Collateral, Capped	Asset backing verification, KYC	Tokenizes commodities like gold, oil, or agricultural products, backed by physical reserves, enabling fractional ownership and seamless global trading on DeFi platforms.
Intellectual Property (IP) Rights	SMARTIP	Custodian, Redeemable	Rights management, royalty distribution	Represents fractional ownership or licensing rights in patents, copyrights, trademarks allowing automated royalty payments, transparent usage tracking, and compliance.
Art & Collectibles	SMARTArt	Custodian, Historical Balances	Provenance tracking, Anti-fraud	Tokenizes expensive artwork and collectibles allowing fractional ownership with secure provenance data and regulating transfers to meet legal compliance.
Debt Instruments & Loans	SMARTDebt	Burnable, Redeemable	Loan agreements, accredited investor checks	Tokenizes loans or debt pools enabling flexible repayment, secondary market trading, and enforcing contract terms via programmable compliance logic on transfers.
Supply Chain Assets	SMARTSupplyChain	Custodian, Transfer Limits	Provenance, Anti-counterfeit	Represents goods and materials in production/distribution with tracking, provenance verification and compliance with trade regulations and quotas.
Invoice & Receivables	SMARTInvoice	Redeemable, Historical Balances	Invoice validation, anti-fraud	Digitizes invoices/receivables as tokens for liquidity; facilitates invoice factoring, peer-to-peer lending, and reduces fraud through immutable blockchain records.
Carbon Credits	SMARTCarbon	Capped, Transfer Limits	Environmental regulations	Tokenizes carbon offsets allowing companies and investors to transparently trade verified emission reductions complying with regulatory frameworks.
Tokenized Insurance Policies	SMARTInsurance	Custodian, Redeemable	Regulatory insurance compliance, KYC	Enables fractional ownership or participation in insurance pools, automating claims, transparency in policy status, and compliance with insurance regulations.
Stable Asset Backing	SMARTCollateralized	Collateral, Pausable	Asset backing audits, KYC	Tokens backed by real-world assets like fiat, gold, or other collateral managed on-chain provide stable value tokens with built-in compliance for audits.
Revenue/Royalty Streams	SMARTRoyalty	Yield, Custodian	Licensing agreements, investor KYC	Tokenizes revenue rights for music, films, books, or other intellectual property, enabling fractional royalties distribution with transparent transaction records.
Shareholder Voting Tokens	SMARTVote	Custodian, Historical Balances	Corporate governance compliance	Provides tokenized voting rights linked to equity tokens allowing secure, verifiable digital shareholder voting compliant with corporate governance policies.
Tokenized Treasuries & Sovereign Bonds	SMARTSovereign	Redeemable, Burnable	Government regulations, investor accreditation	Tokenizes government-issued bonds or treasury instruments enhancing liquidity, transparency, and automated compliance with government securities laws.
Loyalty & Membership Tokens	SMARTLoyalty	Redeemable, Transfer Limits	Membership management rules	Represents customer memberships or loyalty points with flexible redeemability, transferable restrictions, and regulatory compliance for loyalty programs.

SMART tokenization protocol from SettleMint rethinks the ERC-3643 architecture by moving modularity, configuration, and verification closer to the token layer. This creates a more flexible, reusable, and standards-compliant framework for compliant token issuance in dynamic regulatory environments. By decoupling identity and compliance logic from any single token, SMART improves scalability and opens doors for broader cross-application identity use.

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