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Protocol Philosophy

TODO

This section is mostly AI fluff and requires substantial revision to reflect actual protocol design decisions.

Rarity's design centers on a simple goal: transform subjective trust into observable market behavior. Where traditional RWA protocols ask you to trust an appraiser's opinion, Rarity asks the market to prove it with capital. Where others rely on admin discretion, Rarity encodes rules in smart contracts. Where opacity creates information asymmetry, Rarity makes everything verifiable on-chain.

This is not about eliminating trust—that's impossible when bridging physical and digital worlds. It's about minimizing trust, isolating it, and making it verifiable. The result is a system where trust requirements are explicit, bounded, and economically secured.

Oracle-free design​

Core principle: Rarity has zero external price oracles. All pricing is endogenous—discovered through actual trading and capital commitments on-chain.

Why no oracles?

Traditional RWA protocols rely on off-chain appraisals or price feeds, which introduces:

  • Subjective opinions masquerading as objective truth
  • Central points of failure and manipulation vectors
  • Stale data that doesn't reflect current market conditions
  • Trust assumptions about feed operators and data sources
  • Legal/regulatory complexity around licensed appraisers

Rarity's approach: Price discovery through skin-in-the-game mechanisms with minimal cognitive load:

  1. Spot trading (continuous): CLAMM provides real-time price discovery through actual buy/sell activity. Participants simply trade at whatever price the pool offers—no complex decisions needed.

  2. Mark-to-Truth auctions (backstop): When spot price is questioned, random-sample auctions force capital-based truth. Bidders see real assets, submit sealed bids for what they'd actually pay. No appraisals, no opinions—just "what will you pay with real money?"

  3. Verifiable minting: New supply references on-chain acquisition prices (cryptographically attested) and current pool marks. Issuers prove acquisition cost; market validates through trading.

Game theory: The system nudges spot toward objective NAV through economic incentives:

  • Spot mispricing creates arbitrage opportunities (buy undervalued assets, sell overvalued)
  • Frivolous mark-to-truth challenges are expensive (convex penalties)
  • Legitimate challenges are rewarded (bond refunds, potential rebates)
  • All participants optimize individually; system converges collectively

Cognitive simplicity:

  • Traders: Just trade at displayed prices (like any DEX)
  • Minters: Follow programmatic release curves and floor prices
  • Challengers: Post bond to trigger auction; protocol handles the rest
  • Auction bidders: Submit sealed bids for real assets (standard auction UX)

No complex external data feeds, no manual price monitoring, no admin discretion. The protocol does the heavy lifting through automated mechanisms with sound math backing.

Result: Market-discovered pricing that's manipulation-resistant, verifiable, and converges toward true NAV through participant self-interest—all without external oracles.

Core principles​

Market truth over oracle truth​

Price is discovered through trading and committed capital, not external feeds. Markets reveal information through the actions of participants with skin in the game. Oracles merely report what someone else decided. When market price diverges from oracle price, the market is usually right because it reflects what people will actually pay.

Rarity implements this through continuous spot trading on a concentrated liquidity AMM. RWAP and TWAP weight prices by liquidity depth and time, creating manipulation-resistant references. When prices drift from fundamentals, mark-to-truth auctions use committed capital—not opinions—to re-anchor. There are no external price feeds. All pricing is endogenous.

Programmatic fairness over manual discretion​

Rules are encoded in smart contracts and execute automatically. No special treatment, no admin keys, no discretionary interventions. Discretion creates information asymmetry and enables favoritism. Programmatic rules are transparent, predictable, and equally enforced.

Release curves enforce supply schedules automatically. Floor prices are calculated algorithmically from the guarded pool price. Hold periods apply uniformly to all minters. Slashing conditions execute on-chain when triggered. The protocol doesn't care who you are or who you know.

Transparency over opacity​

All acquisitions, minting events, and price mechanisms are fully visible on-chain. Transparency enables verification and allows participants to make informed decisions. Opacity creates information asymmetry and enables manipulation.

Acquisition prices are attested on-chain with cryptographic commitments. Minting events are public and auditable. Release curves and floors are visible in real-time. Privacy is optional through commit-reveal schemes, but never the default.

Gradualism over shocks​

Supply enters gradually, prices adjust smoothly, and mechanisms provide time for market absorption. Sudden changes destroy price stability and create unfair advantages for sophisticated actors who can react faster.

Release curves spread supply over time using convex schedules. Hold periods create buffers before trading. TWAP and RWAP smooth out momentary volatility. Floor descent is gradual, tracking the guarded pool price conservatively.

Trust-minimized, not trustless​

Rarity requires limited trust—whitelisted issuers, custodians who verify physical assets—but minimizes it through economic incentives and cryptographic verification. Pure trustlessness is impossible for RWAs. Someone must verify that the asset exists, is authentic, and is actually in custody.

Issuer whitelisting ensures only reputable parties can launch collections. Economic bonds get slashed for misrepresentation. Cryptographic commitments create verifiable attestations that can't be altered after the fact. Market validation—the fact that people trade these tokens—proves acceptance of the issuer's claims. Trust is not eliminated, but it's contained, observable, and backed by economic consequences.

The synchronization problem​

The fundamental challenge in RWA tokenization is synchronization: keeping asset value, token supply, and market price aligned. Traditional RWA protocols fail when these three variables drift. Asset values change through appreciation or damage. Token supply changes through new minting. Market prices change through speculation or liquidity shocks. If these aren't synchronized, tokens become accounting fiction.

Rarity maintains synchronization through three mechanisms. Verifiable minting ensures token supply reflects real asset acquisitions—every minting event is tied to a cryptographic attestation of acquisition, with the issuer staking reputation and bond on accuracy. Programmatic issuance ensures supply changes don't shock market price—release curves throttle quantity over time, floor prices prevent undercutting, and hold periods create absorption buffers. Mark-to-Truth recentering ensures market price tracks asset value—when price drifts from fundamentals, auctions discover objective value through committed capital and future minting references the updated anchor.

The system self-corrects through market mechanisms, not admin intervention.

Price as information​

In Rarity, price is not just a number—it's information about liquidity, depth, and market consensus. Most systems treat price as the most recent transaction, which is misleading for thin markets. The last trade may be old or unrepresentative. A single trade doesn't reveal depth. Small volume can manipulate the price easily.

Rarity treats price as a liquidity-weighted distribution: What prices can you execute at right now? How much liquidity exists at each level? How stable is that liquidity over time? Price becomes a function of pool price, depth, time, and volume—not just the last print.

Price=f(pool price,depth,time,volume)\text{Price} = f(\text{pool price}, \text{depth}, \text{time}, \text{volume})

This philosophy drives mechanism design. RWAP weights prices by reserve depth, capturing what's actually executable. The guarded pool price uses max⁡(pool,TWAP,RWAP)\max(\text{pool}, \text{TWAP}, \text{RWAP}) to resist manipulation. Release curve floors track this liquidity-weighted price. Mark-to-Truth auctions require committed capital—you have to prove the price with money, not words.

Rarity bridges two distinct forms of truth. Legal truth lives off-chain in physical documents and legal registries—ownership titles, custody receipts, authenticity certificates. It's not directly verifiable on-chain. Economic truth lives on-chain in blockchain state and smart contracts—provable facts about tokens, supply, trades, and prices. It's fully verifiable and composable.

The bridge between these worlds is where Rarity operates. Whitelisted issuers attest to off-chain facts and stake their bonds on accuracy. Cryptographic commitments create on-chain proofs of off-chain data that can't be altered retroactively. Custodians provide third-party authentication. Economic bonds create penalties for misrepresentation.

This creates a trust-minimized system where legal truth becomes economic truth through verifiable attestations. The trust is explicit, bounded, and backed by economic consequences.

The three primitives​

Every Rarity mechanism can be understood through three fundamental concepts: Proof, Flow, and Depth.

Proof is cryptographic evidence that assets exist, are authentic, and were acquired at stated prices. It transforms subjective claims into verifiable facts. Issuer whitelisting, custodian verification, cryptographic attestations of acquisition prices—all of these create proof that can be audited by anyone.

Flow is the rate and manner in which newly minted tokens enter circulation. It prevents supply shocks and enables orderly market absorption. Hold periods create time buffers. Release curves spread supply over schedules. Open interest mechanisms let demand signal before supply arrives. Floor enforcement prevents undercutting.

Depth is measurement of executable liquidity at various price levels. It provides manipulation-resistant pricing and stability. RWAP weights by reserve depth. TWAP smooths over time. The concentrated liquidity AMM concentrates capital where it's needed. Mark-to-Truth auctions discover depth through committed capital.