Guarantee Tokens

Guarantee tokens are bank-issued, on-chain proof-of-inventory instruments tokenised through Centrifuge pools. They are distinct from the trader commitment collateral (the 3.81% bond posted by a market maker) — guarantee tokens represent bank authority over real physical assets, while the bond represents a market maker's performance obligation.

Guarantee Token vs. Trader Collateral

	Guarantee Token	Trader Collateral (Bond)
Issuer	Banks, financial institutions	Market maker (individual or firm)
Standard	ERC-3643 via Centrifuge	ERC-3643 via Tokeny
Backed by	Physical inventory, bank letter of credit	$ARENA or USDC locked in CollateralYieldVault
Value	50% of order notional	3.81% of order notional
Purpose	Proves physical asset exists	Proves market maker's commitment to execute
On default	Slashed → insurance pool	Slashed → insurance pool

Issuance Flow

sequenceDiagram
    participant B as Bank
    participant C as Centrifuge Pool
    participant IR as ERC-3643 Identity Registry
    participant TC as TradeArenaCore

    B->>C: Deposit inventory documentation (IPFS)
    C->>C: Validate bank authority claim
    C->>IR: Issue guarantee token (ERC-3643)
    IR->>TC: Guarantee token registered for order
    TC-->>B: Guarantee token active on-chain

    Note over TC: Order visible to traders with guarantee backing

    alt Successful Settlement
        TC->>B: Release guarantee token
        B->>B: Redeem for USD via Centrifuge pool
    else Default
        TC->>TC: Slash guarantee → insurance pool
    end

Bank-to-Bank Validation via Centrifuge

Guarantee tokens pass through Centrifuge's pool validation process before being issued on-chain:

1. The issuing bank uploads inventory documentation (warehouse receipt, title deed, letter of credit) to IPFS
2. Centrifuge's pool underwriters perform bank-to-bank validation of the underlying asset
3. A validated pool NFT is minted representing the asset in the Centrifuge pool
4. The guarantee token (ERC-3643) is issued on Polygon against the pool NFT as collateral
5. The IPFS document CIDs are stored in guarantee_tokens.ipfs_documents

USD Redemption

Guarantee tokens are redeemable for USD through the Centrifuge pool at settlement:

• On successful settlement: The guarantee token is released and the bank can redeem the pool NFT for USD through Centrifuge's liquidity pools.
• Partial redemption: If an order partially fills, the guarantee is pro-rated by the settled quantity.
• Yield during lock: While locked, the bank's capital in the Centrifuge pool continues earning pool yield, which is separate from TradeArena's CollateralYieldVault returns.

Role in Settlement

Event	Guarantee Token Action
Order created	Token locked in TradeArenaCore
Competition window open	Token backing makes order eligible for Trade Finance tier
Winner selected	Token held pending execution
Successful settlement	Token released; bank redeems via Centrifuge
Market maker default	Token slashed; proceeds sent to arena_insurance_pool
Order expired (no settlement)	Token released; order marked cancelled

Distinction from Inventory Validation Proofs

Guarantee tokens and inventory validation proofs serve related but different purposes:

	Guarantee Token	Inventory Validation Proof
Who provides	Banks	Inventory validators (companies)
What it proves	Bank-level financial guarantee over an asset	Physical existence and ownership of specific inventory
On-chain instrument	ERC-3643 token (tradeable, redeemable)	IPFS hash + optional ERC-721 NFT (non-tradeable record)
Required for	Trade Finance orders with 50% guarantee	All non-FX orders that require inventory attestation

Related Pages

• Bond Issuance — Market maker bond (3.81% of notional, distinct from guarantee)
• Inventory Validation — Company-level physical inventory attestations
• Identity & Compliance — ERC-3643 compliance required for bank-issued guarantee tokens
• Arena Token — Token types overview (guarantee, bond, $ARENA)