CaratShares Journal · How it works
How a First Light Offering works — from vault door to order book
In the previous essay we argued that coloured gemstones — a ~$50B asset class — never got market infrastructure. This one describes the machine we built instead: the full lifecycle of a stone on CaratShares, from the moment it enters custody to the moment someone redeems it and walks away with the physical gem.
Step 1Custody and certification
Nothing lists without two anchors in the physical world. The stone sits in insured vault custody, and it carries a report from an accredited gemological laboratory — GIA, SSEF, Gübelin or AGL — attesting species, weight, colour grade, clarity, origin and treatment status. Those two facts, custody and certification, are the collateral of everything that follows.
Step 2Listing: the stone becomes a record
At listing, the platform mints an NFT certificate for the stone. This is not the tradeable asset — it is the stone's permanent on-chain identity. Custody attestations, insurance, lab reports and every future appraisal attach to it. Chain-of-custody stops being a folder of PDFs and becomes a public, tamper-evident record that outlives any single custodian.
Step 3Facets: the unit of ownership
Ownership of the stone is divided into facets — carat-level units, one facet per hundredth of the stone's weight class, divided the way a brilliant cut divides a crown: each unit identical in rights, each tradeable on its own. A 5.60-carat emerald lists as 560 facets. Facets are deliberately indivisible (the token has zero decimals): the unit is the market's atom, and every price you see is a price per facet.
Step 4The First Light Offering
The First Light Offering (FLO) is the primary issuance — named for the moment a finished gem first catches light after the cutter's bench. Facets are offered against the stone's appraised net asset value, recorded on-chain by sworn appraisers. Buyers subscribe with as little as one facet; the seller — a dealer, a cutter, an estate — recoups capital without hunting a single whole-stone buyer for years. When the offering fills, primary issuance closes forever. There is no dilution mechanism: a stone's facet count is fixed at listing.
An IPO turns a company into shares. A FLO turns a stone into facets — without ever moving the stone.Step 5
Continuous trading
After the FLO, the stone's on-chain order book opens: bids and asks at any size, any time, settled on Base in seconds. This is the part that has never existed for gemstones — an observable, continuous, two-sided price for a specific certified stone. The spread and depth tell you what auction results never could: what the market thinks today.
Step 6Valuation over time
Sworn appraisers update each stone's NAV on a recorded schedule, and every revision lands on-chain with a public audit trail — who appraised, when, and what changed. Market price and appraised value discipline each other: a stone trading far from NAV is information, visible to everyone at once, not whispered between dealers.
Step 7Governance and exit
Facet holders vote on the decisions that matter for a physical asset: custody changes, re-appraisals, and whether to accept a whole-stone offer. And at the end of the line sits physical redemption — consolidate the facets, claim the certificate, and take delivery of the actual stone. The token is never the asset; it is enforceable fractional title to one.
Why these design choices
Why indivisible facets? Fractions of fractions destroy price legibility. One facet, one unit, one price — order books stay readable and the atom of ownership maps to the atom the trade already uses: the carat.
Why an order book, not an AMM? Unique assets have no external reference price to anchor a curve. An order book lets informed participants — dealers, appraisers, collectors — express real views and build price discovery from zero.
Why Base? Sub-second, sub-cent settlement, Ethereum security assumptions, and a straightforward path from testnet demo to mainnet. The contracts are open and auditable.
Why publish the standards? Because infrastructure wins by adoption, not secrecy. The FLO and the facet are free for the trade to use; the network effects of the venue are not.
Every step above is live today — as a working demo on Base Sepolia testnet, with an on-chain order book per stone. Watch it run in the catalogue, or start with the white paper for the full specification.