# The AFI Approach: On-Chain Proof Of Reserve Vaults

Tokenization solved the *representation* problem — converting real-world assets into transferable digital tokens.\
What it did **not** solve is the *verification* problem: proving, in real time, that those tokens remain fully backed by their underlying reserves.

AFI introduces **Proof-of-Reserve (PoR) Vaults** as a foundational primitive for the RWA ecosystem.\
These vaults create a **cryptographically enforced linkage** between off-chain collateral, on-chain supply, and DeFi composability.

***

### **What AFI Proof Of Reserve Vaults Do**

At their core, AFI PoR Vaults perform three functions:

#### **1. Escrow On-Chain the Tokenized Asset**&#x20;

The issuer deposits their entire supply of the tokenized asset (e.g., `rwaX`) into a **non-custodial ERC-4626 vault**.

* The vault locks and publicly displays the balance.
* These tokens cannot be rehypothecated, redirected, or silently re-used.
* This creates a **verifiable, immutable reserve floor.**

***

#### **2. Mint a New Receipt Token with Cryptographic Supply Limits**

When the vault receives the base RWA token, it mints **afi-rwaX** — an ERC-4626 receipt token representing provably backed collateral.

* **afi-rwaX supply cannot exceed the balance of rwax held in the vault.**
* The cap is enforced by the vault contract itself.
* Anyone can independently verify the mint cap using on-chain data.

This converts issuer-backed assets into **math-backed assets**.

***

#### **3. Bind Off-Chain Reserves to On-Chain Enforcement**

AFI integrates reserve attestations into a **Proof Registry** that encodes the relationship:

```
afi-rwaX supply ≤ rwaX locked < attested off-chain reserves
```

In practice:

* The left inequality is enforced by the contract (cannot mint beyond on-chain collateral).
* The right inequality is enforced by continuous reserve attestations (via auditors, oracles, or AVS networks).
* Any discrepancy triggers alerts or supply restrictions.

This creates a **real-time solvency guarantee**, anchored both on-chain and off-chain.

***

### **Why This Is Transformative**

AFI’s PoR Vaults fundamentally change how RWA tokens behave:

#### **A. RWA Tokens Stop Being “Issuer IOUs”**

Traditional RWA tokens rely on:

* Custodian certificates
* Corporate balance sheets
* Legal contracts
* Human trust

AFI converts them into **cryptographically enforced assets**, with deterministic visibility into reserves.

***

#### **B. DeFi Protocols Gain a Safe RWA Collateral Layer**

Protocols like Aave, Compound and Morpho require:

* Programmatic verifiability
* Deterministic risk limits
* Predictable solvency

afi-rwaX satisfies all three:

* It is always **fully collateralized** by locked rwaUSD.
* Its supply cannot exceed verified reserves.
* Its backing is independently confirmable by any contract.

This unlocks:

* Lending markets
* Stablecoin minting
* Structured yield products
* On-chain treasuries

All without counterparty risk.

***

#### **C. Issuers Gain Institutional-Grade Transparency**

For RWA issuers, AFI becomes a **distribution and trust layer**:

* Reserves → Attested
* Tokens → Verified
* Integrations → Safe
* Liquidity → Composable
* Market Access → Expanded

Issuers effectively “upgrade” their tokens into assets that DeFi can use safely.

***

### **From Human Assurance to Programmatic Proof**

With AFI, the RWA stack evolves:

**Before AFI**

* Issuers provide PDFs
* Users trust issuers
* DeFi trusts users
* Risk flows downstream unchecked

**With AFI**

* Issuers deposit & attest reserves
* Vaults enforce supply limits
* On-chain proofs confirm solvency
* DeFi integrates fully verified collateral

The trust chain moves from **people → paperwork → protocols**.
