Minting
Minting is the mechanism through which new tokens enter circulation after a collection is live and trading. Unlike the initial bootstrapping phase (Raredrop), minting occurs continuously as the collection grows—new assets are acquired, authenticated, and tokenized, expanding the collection's on-chain representation while maintaining price discipline and fair market dynamics.
The design goal is straightforward: transparent token creation that scales supply with acquisitions, ensures orderly price discovery, and preserves fairness for both existing token holders and new participants. Minting bridges the gap between off-chain asset acquisition and on-chain liquidity, enabling collections to grow organically while maintaining 24/7 tradability and composability with DeFi primitives.
How minting works
The asset-backed token model uses fixed issuance per asset: each asset mints a predetermined number of tokens. This creates transparent, predictable supply growth that scales linearly with acquisitions—add one asset, mint a fixed number of tokens.
When a new asset is acquired and authenticated, the minting process follows a two-path structure depending on asset ownership:
Path 1: Issuer-acquired assets
The issuer acquires an asset directly, authenticates it, and mints the corresponding tokens. The issuer owns the newly minted tokens and must offer them for sale at the acquisition price (the price paid to acquire the asset).
Distribution requirements:
- Minimum 80% of minted tokens must be offered to the public at acquisition price
- Maximum 20% may be retained by issuer for participation in other markets (lending, borrowing, index funds, etc)
- Default offering period: 30 days (protocol-determined, configurable per collection)
This ensures broad distribution and fair access while allowing the issuer to maintain strategic reserves for market-making and protocol participation.
Path 2: Custodian-verified assets
An external owner sends their asset to the custodian for tokenization. The issuer verifies authenticity and quality, attests to it on-chain, and mints the corresponding tokens. The original owner retains ownership of the newly minted tokens and can use them across the protocol: spot trading, lending, borrowing, futures, or other DeFi primitives.
This path enables existing asset owners to participate in the protocol without selling their assets, creating a two-way bridge between off-chain holdings and on-chain liquidity. When buy-side open interest exists at attractive prices, external owners can supply inventory faster than the issuer can source, helping to close undervaluation without protocol fire-drills or issuer working-capital strain.
Critical difference: Unlike the issuer (who is expected to act in the protocol's best interest and follow distribution requirements), external owners have no obligation to support orderly market dynamics. They could immediately sell all tokens, potentially causing sharp price drops. This is why supply management mechanisms (especially hold periods) are critical for custodian-verified assets to prevent disorderly dumping and protect existing token holders.
For a detailed exploration of how external asset onboarding works, including incentive structures, quality gates, and when this channel is most valuable, see External Asset Onboarding.
The challenge
For issuer-acquired assets, minting introduces new supply at a fixed price (acquisition value), which may differ from the current pool price determined by the CL AMM. This creates price tension that must be resolved through orderly market mechanisms.
Note: This challenge applies specifically to Path 1 (issuer-acquired assets). For Path 2 (custodian-verified assets), there is no acquisition price—the original owner retains their tokens and can use them immediately across the protocol. However, some mechanisms to prevent disorderly market impact (like hold periods or release curves) may still apply to custodian-verified assets to prevent sudden supply shocks.
Two scenarios emerge for issuer-acquired assets:
Case A: Acquisition price above pool price — The issuer offers newly minted tokens at acquisition price (above current pool price). Market participants can buy existing tokens from the pool at a discount compared to the new supply's offering price, creating natural upward price pressure. If sufficient demand exists, the pool price naturally moves upward toward the acquisition price as the discount narrows. No special mechanisms needed—market dynamics handle the adjustment.
Case B: Acquisition price below pool price — New supply enters below market, creating economic surplus and potential price pressure. When an asset is acquired for 5,000, the $200 difference is minting surplus—real value created by the protocol's price discovery and liquidity infrastructure. This surplus is distributed through the surplus pot with explicit splits (default: 20% protocol performance fee, 35% collection cost pot, 45% to LPs by merit—see Fees & Yield Routing for complete accounting). This profit-sharing structure aligns incentives: LPs benefit from providing liquidity, the protocol earns performance-based revenue, and the collection reduces its need for dilution.
While surplus creation is economically positive, the supply entry still requires careful management to ensure orderly price movement and prevent disorderly market impact.
The protocol's supply management mechanisms focus on Case B because even though surplus creation is positive, the supply entry must be managed carefully to balance price stability, fairness, and capital efficiency while preventing disorderly market impact.
For comprehensive information about minting surplus distribution, performance fees, and how surplus contributes to collection cost coverage, see Fees & Yield Routing.
Supply management mechanisms
The protocol employs multiple mechanisms to ensure orderly market entry for newly minted tokens. These mechanisms prevent disorderly price movements, protect existing holders from sudden dilution, and maintain fair market dynamics—particularly critical for Case B scenarios where acquisition price is below pool price.
Initial implementation
The initial release focuses on three core mechanisms:
- Hold period: Newly minted tokens are held for a protocol-determined period before entering circulation, creating a cooling-off period that prevents immediate dumping
- Release curve: Tokens are released gradually over time according to a predetermined curve, creating smooth supply growth that prevents sudden price shocks
- Open interest: Prior to the minting event, users place limit orders that express buy interest at specific price levels. These orders provide forward-looking demand signals that inform issuer acquisition decisions. As the protocol matures, private order placement will be supported to prevent information leakage while maintaining demand visibility for issuers
These three mechanisms work together to ensure orderly price discovery and fair market dynamics when new supply enters below market price.
Alternative mechanisms
As a new protocol, Rarity is designed to experiment with different primitives to ensure the creation of fair markets. The following mechanisms are candidates for future implementation:
- Dutch auction: Descending-price auction where tokens start at a high price and decrease over time until demand meets supply
- Bonded minting: (Not currently prioritized) Tokens are minted against deposited collateral (e.g., USDC), creating a price floor and enabling redemption mechanisms. Requires significant collateral capital and infrastructure complexity not needed for initial release
- Privacy-preserving minting: (Not currently prioritized) Commit-and-reveal scheme where acquisition price is hidden initially and disclosed gradually through banded intervals. Other mechanisms have been determined sufficient, though privacy becomes especially interesting when combined with Dutch auctions to prevent strategic gaming
- Time-weighted release: TWAP-based pricing for price-stable entry
- Reserve-weighted release: RWAP-based pricing for depth-aware entry
- Staking-based priority: Priority access for token holders who stake
- Floor check (guarded pool): Prevents minting below the guarded market price, blocking attempts to claim artificially low acquisition prices (to be explored)
- Per-collection caps: Limits total supply per collection to prevent flooding the market with excessive issuance (to be explored)
The protocol's modular design enables experimentation with these mechanisms to discover which combinations produce the fairest and most efficient markets for different asset classes.
What you'll find here
The following sections explores supply management in depth:
Overview:
- External Asset Onboarding: How external owners bring assets into the protocol, creating responsive supply when undervaluation exists
- Minting risks: Comprehensive analysis of all minting risks and how the protocol's layered defense mechanisms address them
- Price dynamics and risks: Detailed analysis of Case A and Case B scenarios with mathematical formulations and worked examples
Core mechanisms (initial implementation):
- Hold period: How hold periods prevent immediate dumping and create cooling-off periods
- Release curve: How gradual release curves manage supply entry and price impact
- Open interest: How limit orders provide demand signals and capital for acquisitions
Alternative mechanisms (future experimentation):
- Dutch auction: Descending-price auctions for fair price discovery and transparent distribution
- Bonded minting: (Not currently prioritized) Collateral-backed minting with redemption mechanisms and price floors. Requires significant capital
- Privacy-preserving minting: (Not currently prioritized) Commit-and-reveal scheme with banded disclosure. Especially interesting when combined with Dutch auctions
Mechanism coordination:
- Coordinated supply management: How multiple supply management mechanisms work together in practice, with worked examples and profit-sharing structures
Each mechanism page includes formal structure, worked examples, and analysis of how it prevents disorderly market impact and protects existing holders.
Why this matters
Minting is where off-chain acquisitions meet on-chain markets. Get it wrong and you create unfair dilution, disorderly price movements, or capital inefficiency. Get it right and you enable organic collection growth while maintaining fair market dynamics for all participants—existing token holders, new buyers, and issuers.
The mechanisms described here are designed to be transparent, predictable, and fair. They ensure that as collections grow, markets remain orderly and prices reflect real asset value rather than supply shocks or manipulation.