Who is Who in the AMPnet Tokenization and Auditing System
In order for the whole AMPnet ecosystem to function properly, tokenization and auditing systems are of utmost importance.
To democratize the process of how tokenized asset issuers are audited through staking value across the whole ecosystem, AMPnet has introduced the key roles — Tokenizers and Auditors. As all participants stake value, the trust in the ecosystem’s processes is extremely high and secure.
In order for you to fully understand Tokenizers’ and Auditors’ roles, you might want to a look at our blog explaining how AMPnet enforces trust — and how it makes the ecosystem processes secure.
Let’s see who exactly are Tokenizers, and how exactly Auditors verify that Tokenizers legally own the assets they list via the AMPnet protocol.
Tokenizers are the bridge through which AMPnet connects the blockchain to real-world assets. Tokenizers can be companies, groups of individuals, or single individuals, and are defined as any holder of AMPnet tokens.
Tokenizers lists tokenized assets on the AMPnet network. It’s important to note that the role of a tokenizer is designed to be extremely scalable — it doesn’t matter whether a tokenizer is a company or an individual, nor does it matter what kind of asset they tokenize or the method they use to tokenize it.
When listing tokenized assets on the AMPnet network, tokenizers must meet the following criteria:
- The tokenizer must prove legal ownership over the assets they tokenize
- Nobody else holds any rights over the asset
- The tokenization method used by the tokenizer is performed in a regulatory compliant manner within their jurisdiction
- The tokenizer can present legally valid contracts that prevent them from either selling the asset or using it as collateral.
When listing tokenized assets on the AMPnet network, tokenizers are obligated to deposit a specific amount of capital in reserve. This deposit, referred to as a Mandatory Reserve Requirement, is calculated as a percentage of the assets that the tokenizers lists on AMPnet. This reserve is used to reimburse token holders in the event that a tokenizer fails to meet the criteria outlined above.
Mandatory Reserve Requirements are flexible and are managed through a smart contract — tokenizers can deposit reserve in any ERC20 token accepted by the contract. The Mandatory Reserve Requirement calculates the value of the tokens deposited as a reserve as well as the assets listed on AMPnet through a price feed.
The flexibility of the tokenizer role within the AMPnet ecosystem allows for extreme diversity in how they are built or governed. This means that tokenizers can get complicated.
Some tokenizers may be relatively simple. A tokenizer that tokenizes only a small handful of assets, for example, will operate with a relatively straightforward structure. Larger tokenizers, however, may list hundreds of different assets across multiple countries.
Tokenizers create assets on the AMPnet network and must prove their ownership over those assets.
The AMPnet ecosystem is focused on scalability and trust — so how do we ensure that tokenizers of any size can be audited and the assets they tokenize verified?
Auditors police the AMPnet ecosystem, ensuring that tokenizers meet the criteria outlined above when tokenizing assets. The role of auditors replaces third-party panels of arbitrators or centralized authority within the AMPnet network.
Auditors work to verify the integrity of the assets listed on the AMPnet network and the tokenizers that list the assets. Like tokenizers, anybody can become an auditor. The only criteria needed to become an auditor is to stake a specific amount of AMPnet tokens.
Auditors stake AMPnet tokens in the AMPnet auditing smart contract, which automatically places them in the pool of auditors. The AMPnet protocol will select auditors from this pool to audit tokenizers.
The role of an auditor can get complicated — when auditing tokenizers, auditors must verify a wide range of details such as ownership over assets or account balances, manually check legal documents, or communicate directly with tokenizers.
Auditors are rewarded with fees for performing audits. This fee is calculated based on the complexity of the tokenizer they audit and a base auditing fee. The complexity score of a tokenizer is determined by auditors during the auditing process, while the base auditing fee is determined through the AMPnet governance model.
How do Auditors Audit Tokenizers?
It’s important to note that audits aren’t performed by single auditors. Audits occur on a weekly basis for each tokenizer on the AMPnet network. Every tokenizer is audited by a council of auditors selected at random by the AMPnet protocol — a single Auditor Council can consist of between 3 and 21 different auditors.
The AMPnet council and AMPnet community collectively work to establish a framework used to audit tokenizers. This framework consists of standard procedures that include automated software for verifying ownership, contract readers, and document review guidelines. Auditing consists of both automated and manual verification practices.
The number of auditors chosen to audit a tokenizer depends on the complexity of the tokenizer itself. During an audit, each auditor will verify a tokenizer and present their audits to the council.
Each auditor verifies that tokenizers legally own the assets they list via the AMPnet protocol, calculates a complexity score for the tokenizer, and calculates a “risk score” for the tokenizer. A high risk score will increase the mandatory reserve requirement of the tokenizer.
What Happens if a Tokenizer Fails an Audit?
During the auditing process an Auditor Council may find that the tokenizer under audit doesn’t meet the standards required to list assets on the AMPnet network. A tokenizer may, for example, fail to prove ownership over tokenized assets, or fail to comply with regulatory standards within their jurisdiction.
If an Auditor Council finds that a tokenizer fails an audit the tokenized assets listed by the failed tokenizer are immediately frozen. The tokenizer is then forwarded for review by the AMPnet governance council. If the tokenizer is determined to be either malicious or incompetent, the mandatory reserve contract distributes reserve capital to all token holders of the tokenized asset listed by the tokenizer.
A tokenizer that fails an audit will be ejected from the AMPnet platform. The mandatory reserve locked up by the tokenizer is used to reimburse token holders.
How Do We Enforce Auditor Competence?
Quis custodiet ipsos custodes — who watches the watchmen? The AMPnet protocol integrates a system called “Auditor Slashing” through which auditors keep other auditors in check through a democratic process.
At the end of an audit, all auditors present their audits to the Auditor Council they are participating in. If one auditor finds another auditor to be incompetent or operating as a bad actor, the auditor can be reported anonymously within the group for “slashing”.
If an auditor is reported within an Auditor Council, the Auditor Council will perform a vote to determine whether the reported auditor should be slashed. A majority vote in favor of slashing an auditor will forward the auditor to an AMPnet governance vote.
A slashed auditor will be removed from the auditor pool and their staked AMPnet tokens split. A percentage of the slashed auditors AMPnet token stake is forwarded to the reporting auditor, while the rest is sent to the AMPnet treasury.
The AMPnet tokenization and auditing system is a self-governing democratic model that ensures all assets listed on the AMPnet network are verifiably backed by real world assets. The process used to enforce trust within the AMPnet tokenization model disincentivizes bad actors by forcing participants to stake capital, which is forfeit when bad actors are discovered.
- Tokenizers digitize assets and list tokens on the AMPnet network, backing assets with reserves placed in a smart contract
- Auditors audit tokenizers and ensure they are compliant and verifiable, staking AMPnet tokens as a bond for positive network participation
- If tokenizers fail to verify asset ownership or meet tokenization standards their reserve is liquidated and distributed
- If auditors are proven malicious or incompetent they are slashed, distributing their AMPnet stake to reporting auditors and the AMPnet treasury
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