Asset Tokenization Architecture

Overview

Asset tokenization is at the core of the Riskify platform, enabling real-world assets and risk exposures to be represented as digital tokens. This architecture allows for efficient risk transfer, capital allocation, and transparent management of insurance and reinsurance products. This document explains the key components, token types, and mechanisms that make up the tokenization system in Riskify.

Token Types

The Riskify ecosystem uses several types of tokens to represent different forms of risk, capital, and yield. The diagram below shows the relationships and functions of each token type:

graph TD
    subgraph Token Types
        A[Token Base] --> B[Share Tokens]
        A --> C[Bundle Tokens]
        A --> D[Derivative Tokens]
        A --> E[Yield Tokens]
        
        B --> B1[Direct Capital Allocation]
        B --> B2[Premium Income Rights]
        B --> B3[Yield Entitlement]
        
        C --> C1[Multi-Tier Exposure]
        C --> C2[Standardized Risk Profiles]
        C --> C3[Simplified Participation]
        
        D --> D1[Synthetic Positions]
        D --> D2[Hedging Instruments]
        D --> D3[Leverage Options]
        
        E --> E1[Premium Accumulation]
        E --> E2[Investment Returns]
        E --> E3[Claimable Yields]
    end

Diagram: Token types in Riskify and their primary functions. Share tokens represent direct capital, bundle tokens aggregate exposures, derivative tokens enable hedging, and yield tokens track returns.

Token Encoding Structure

Each token in Riskify encodes important information about its origin, tier, and function. This structure enables efficient on-chain operations and clear identification of risk positions.

graph LR
    subgraph Token ID Encoding
        A[Token ID] --> B[Pool ID]
        A --> C[Tier Level]
        A --> D[Token Type]
        
        B --> B1[16 bits]
        C --> C1[2 bits]
        D --> D1[2 bits]
        
        B1 --> E[Pool Identification]
        C1 --> F[Risk Layer]
        D1 --> G[Token Function]
    end

Diagram: How each token's ID encodes its pool, tier, and type, allowing for granular tracking and management of risk and capital.

Pool Types and Mechanisms

Pools are smart contract structures that manage groups of tokens and facilitate risk sharing, liquidity, and capital allocation. Different pool types support various mechanisms for token management and liquidity provision.

graph TD
    subgraph Pool Types
        A[Token Pool Base] --> B[BurnMint]
        A --> C[LockRelease]
        A --> D[SiloedLockRelease]
        
        B --> B1[Token Burning]
        B --> B2[Remote Minting]
        
        C --> C1[Token Locking]
        C --> C2[Local Release]
        
        D --> D1[Shared Liquidity]
        D --> D2[Independent Storage]
    end

Diagram: Pool types in Riskify. BurnMint pools burn tokens and mint new ones remotely, LockRelease pools lock tokens and release them locally, and SiloedLockRelease pools manage liquidity and storage independently.

Risk Pool Architecture

Risk pools are structured to support different risk appetites and capital layers. Each pool is divided into tiers, allowing for differentiated risk and yield profiles.

graph TD
    subgraph Risk Pool Structure
        A[Risk Pool] --> B[Senior Tier]
        A --> C[Mezzanine Tier]
        A --> D[Junior Tier]
        
        B --> B1[First Loss]
        B --> B2[Highest Risk]
        B --> B3[Highest Yield]
        
        C --> C1[Middle Layer]
        C --> C2[Balanced Risk]
        C --> C3[Moderate Yield]
        
        D --> D1[Last Loss]
        D --> D2[Lowest Risk]
        D --> D3[Stable Yield]
    end

Diagram: Risk pools are divided into senior, mezzanine, and junior tiers, each with different risk and yield characteristics. This structure enables investors to choose their preferred exposure.

Token Flow and Interactions

The following sequence diagram illustrates how tokens move through the system, from investor capital to yield distribution, and how risk is assessed and updated:

sequenceDiagram
    participant I as Investor
    participant P as Risk Pool
    participant T as Token System
    participant R as Risk Engine
    
    I->>P: Deposit Capital
    P->>T: Mint Share Tokens
    T->>I: Issue Tokens
    P->>R: Update Risk Metrics
    R->>P: Risk Assessment
    P->>T: Generate Yield Tokens
    T->>I: Distribute Yields

Diagram: The flow of capital and tokens in Riskify. Investors deposit capital, receive tokens, risk is assessed, and yields are distributed based on performance.

Key Features

This architecture provides several important features for users and the platform:

1. Token Standardization

   • ERC-20 for Share Tokens (fungible capital positions)
   • ERC-721 for Building Tokens (unique asset representation)
   • ERC-1155 for Risk Pool Tokens (multi-asset, multi-tier positions)

2. Risk Management

   • Multi-tiered risk allocation for flexible exposure
   • Automated risk assessment and scoring
   • Dynamic premium calculation based on real-time data

3. Liquidity Management

   • Flexible pool types for different liquidity needs
   • Cross-chain compatibility for broader access
   • Automated rebalancing to maintain pool health

4. Compliance & Security

   • Built-in regulatory reporting and validation
   • On-chain solvency and risk transfer verification
   • Security features such as access control and emergency pause

Implementation Details

This section provides example data structures used in smart contracts to implement token encoding and pool configuration.

Token Encoding

The TokenData struct encodes all relevant information for a token, enabling efficient on-chain lookups and management:

struct TokenData {
    bytes32 poolId;
    uint8 tierLevel;
    uint8 tokenType;
    uint256 riskScore;
    uint256 timestamp;
}

Example: Each token stores its pool, tier, type, risk score, and timestamp for full traceability and risk management.

Pool Configuration

The PoolConfig struct defines the parameters and constraints for each risk pool, supporting robust risk and capital management:

struct PoolConfig {
    uint256 poolId;
    uint256 maxExposure;
    uint256 minCollateral;
    uint256 targetYield;
    uint256 minDiversification;
    uint256 maxConcentration;
    uint256 minLiquidity;
    uint256 maxLeverage;
    uint256 minStake;
    uint256 maxStake;
    uint256 minLockPeriod;
    uint256 maxLockPeriod;
    Tier[] tiers;
    bytes32[] allowedRegions;
    bytes32[] allowedPerils;
    bool isActive;
}

Example: Pool configuration includes exposure limits, collateral requirements, yield targets, diversification rules, and allowed regions/perils.

Best Practices

To ensure robust, secure, and efficient operation of the tokenization system, follow these best practices:

1. Token Management

   • Use appropriate token standards for different use cases
   • Implement proper access controls and permissions
   • Maintain clear and up-to-date token metadata

2. Risk Assessment

   • Regularly update risk metrics and validate data
   • Use comprehensive validation checks and automated scoring

3. Pool Operations

   • Define clear tier structures and transparent fee models
   • Set up automated rebalancing triggers to maintain pool health

4. Security Considerations

   • Conduct regular smart contract audits
   • Implement robust access control and emergency pause features

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