Litepaper

Litepaper 0.1.0

Abstract

TLD3 introduces a new way to trade domain derivatives by turning Web2 and Web3 domains into fractional ERC-20 tokens while proving ownership of the domains by DNS challenges and Doma Protocol’s Web3 domains.

Introduction

Tokenization has changed how assets are owned and traded, allowing them to be split, exchanged, and used in decentralized finance. Derivative trading on decentralized platforms has seen rapid growth, letting users speculate, hedge, or gain exposure without holding the full asset.

However, this approach has its limitations. How can someone trade or speculate on an asset if ownership cannot be proven? That is why our philosophy for tokenization is based on verified ownership. TLD3 addresses this for domains. Each domain is converted into ERC-20 fraction tokens, allowing anyone to trade parts of a domain, speculate on its value, and participate in liquid markets.

Economy

Mathematical Model

The TLD3 pricing mechanism is based on bonding curve mathematics. That’s how domain fraction pricing is calculated based on sales and purchases.

Symbols and State

Supply and Sold State

$N$ : total supply of base units (minted to platform at creation)
$s$ : sold amount in base units (fractionsSold), with $0 \\le s \\le N$
$r = s / N$ : sold ratio

ETH Parameters and Balances

$E_0$ : initial ETH parameter (ethDeposited) (wei), used as price anchor
$B$ : current ETH balance (wei) held by the DomainToken contract

Fees (Basis Points)

$f_p$ : platform fee in bps
$f_c$ : creator fee in bps
$f = f_p + f_c \\le 500$ (combined cap: 5%)

Units

Token uses 18 decimals; 1 token unit equals:

1 \text{ token unit } = 10^{18} \text{ base units}

Quadratic Spot Price

The on-chain spot price per token unit is quadratic in the sold ratio $r$ .

Base (per base unit) anchor price:

p_0 = \frac{E_0}{N} \quad \text{(wei per base unit)}

Spot price per base unit at sold state $s$ :

p_{\mathrm{bu}}(s) = p_0 (1 + r)^2 = \frac{E_0}{N} \left(1 + \frac{s}{N} \right)^2

Spot price per 1 token unit ( $10^{18}$ base units):

P(s) = p_{\mathrm{bu}}(s) 10^{18} = \frac{E_0 10^{18}}{N} \left(1 + \frac{s}{N} \right)^2

Monotonicity:
$P(s)$ increases with $s$ ;
$P(0) = \frac{E_0 10^{18}}{N}$ .

Primary Buy Execution

Given an ETH input of $X$ wei and pre-trade state $s$ :

Compute spot price $P(s)$
Compute purchasable base units (flooring):

a = \left\lfloor \frac{X 10^{18}}{P(s)} \right\rfloor

Cap by platform inventory $I$ :

a \leftarrow \min\{a, I\}

Exact ETH spent (wei):

\mathrm{cost} = \left\lfloor \frac{a P(s)}{10^{18}} \right\rfloor

Token transfer fees (in base units):

\mathrm{fee}_p = \left\lfloor \frac{a f_p}{10{,}000} \right\rfloor, \quad \mathrm{fee}_c = \left\lfloor \frac{a f_c}{10{,}000} \right\rfloor, \quad a_{\mathrm{net}} = a - \mathrm{fee}_p - \mathrm{fee}_c

Transfers:

Token: platform → buyer $a_{\mathrm{net}}$ ; platform → creator $\mathrm{fee}_c$ . Platform fee on buys is a self-transfer; net platform outflow equals $a - \mathrm{fee}_p$ .
ETH: buyer → creator $\mathrm{cost}$ ; refund to buyer $X - \mathrm{cost}$ .

State update:

s' = s + a

Notes: The entire buy executes at the pre-trade spot price $P(s)$ ; there is no intra-trade slippage integration.

Secondary Sell Execution

Given a user sells $a$ base units at pre-trade state $s$ :

Compute spot price $P(s)$
Token fees and returned amount:

\mathrm{fee}_p = \left\lfloor \frac{a f_p}{10{,}000} \right\rfloor, \quad \mathrm{fee}_c = \left\lfloor \frac{a f_c}{10{,}000} \right\rfloor, \quad a_{\mathrm{ret}} = a - \mathrm{fee}_p - \mathrm{fee}_c

Circulation constraint:

a_{\mathrm{ret}} \le s

ETH payout (wei) from the DomainToken contract:

\mathrm{payout} = \left\lfloor \frac{a_{\mathrm{ret}} P(s)}{10^{18}} \right\rfloor

Require $B \ge \mathrm{payout}$ .

Transfers:

Token: seller → platform $\mathrm{fee}_p$ and $a_{\mathrm{ret}}$ ; seller → creator $\mathrm{fee}_c$ .
ETH: DomainToken → seller $\mathrm{payout}$ .

State update:

s' = s - a_{\mathrm{ret}}

Fees and Exemptions

Fees apply on token transfers unless either party is fee-exempt.
Combined fee cap: $f \le 500$ bps.
Destinations:
- Platform receives $\mathrm{fee}_p$ on sells; on buys, platform fee is a self-transfer.
- Creator receives $\mathrm{fee}_c$ on both buys and sells (in tokens) and receives primary sale ETH.

Liquidity and Solvency Constraints

Inventory constraint on buys: $a \le I$
Circulation bound on sells: $a_{\mathrm{ret}} \le s$
ETH solvency for sells:

B \ge \left\lfloor \frac{a_{\mathrm{ret}} P(s)}{10^{18}} \right\rfloor

Primary sale ETH ( $\mathrm{cost}$ ) is paid to the creator and does not automatically fund $B$ .

Properties and Implications

Single-price execution:
Large trades pay/receive the pre-trade spot price. Compared to slippage-integrated bonding curves, large buys are cheaper and large sells are richer.
Funding gap risk:
Because primary sale ETH flows to the creator while sells pay from $B$ , sustained sell pressure can render sells infeasible.
State accounting:
Buys increase $s$ by $a$ ; sells decrease $s$ by $a_{\mathrm{ret}}$ .

Parameterization and Tuning

Supply $N$ and anchor $E_0$ set the initial scale:

P(0) = \frac{E_0 10^{18}}{N}

Fee policy $(f_p, f_c)$ trades off friction vs. accrual (bounded by 5%).
Liquidity $B$ should match anticipated redemption volume.

Core Equations (Summary)

P(s) = \frac{E_0 10^{18}}{N} \left(1 + \frac{s}{N} \right)^2

a = \left\lfloor \frac{X 10^{18}}{P(s)} \right\rfloor, \quad \mathrm{cost} = \left\lfloor \frac{a P(s)}{10^{18}} \right\rfloor, \quad s' = s + a

a_{\mathrm{ret}} = a \left(1 - \frac{f}{10{,}000} \right), \quad \mathrm{payout} = \left\lfloor \frac{a_{\mathrm{ret}} P(s)}{10^{18}} \right\rfloor, \quad s' = s - a_{\mathrm{ret}}

Technical Overview

Smart Contracts

The TLD3 platform is built on Doma Testnet.

Tradable.sol:
0xb6BA8806f72F32a028BFECABeE664212F5c483eF (opens in a new tab)

Idea Roadmap