Coloured gemstones are a ~$25B/year trade with no continuous price, no fractional access, and no atomic settlement. This paper specifies a minimal on-chain standard that supplies all three: per-stone fractional tokens ("Facets"), primary issuance at an appraised value ("First Light Offering"), a stablecoin-settled order book, and contract-enforced governance up to and including physical redemption of the stone. A complete reference implementation is live on Base Sepolia; parameters below are quoted directly from the deployed contracts.
Every major store of value has acquired market infrastructure — bonds trade electronically at T+0, diamonds price against the Rapaport grid, real estate fractionalised through REITs, art through auction indices and fractional platforms, gold through ETFs and on-chain wrappers. Coloured gemstones acquired none of it: stones change hands in private rooms, priced by reputation. Three barriers were responsible — identification (no reproducible way to verify a stone's identity), custody (no industrialised insured storage for unique items), and settlement (no atomic pay-and-own between strangers). All three have fallen in the last decade: laboratories (GIA, SSEF, Gübelin, AGL, GRS) issue reproducible, QR-verifiable reports; bonded vaults industrialised unique-item custody; programmable blockchains made delivery-versus-payment atomic.
Three contracts (Solidity 0.8.24, OpenZeppelin base, reentrancy-guarded):
| Contract | Type | Role |
|---|---|---|
| StoneVault | hub | Listing, FLO issuance, order book, fee accounting, sale votes, squeeze-out escrow, redemption. Sole authority for force-moves and burns. |
| StoneFractional | ERC-20 ×N | One contract per stone. Whole-unit Facets (decimals = 0); full supply minted to the vault at listing; fixed forever. |
| StoneCertificate | ERC-721 | One custody certificate per stone (CCERT), carrying lab-report metadata. Held by the vault until redemption, then force-transferred to the redeeming holder. |
Settlement is in a 6-decimal USD stablecoin. The reference deployment uses a mock USDC on testnet; the mainnet target is native USDC on Base.
The operator lists a stone with its appraised NAV, total facet count, and lab-report reference. The vault deploys the stone's Facet contract, mints the full supply to itself, and mints the certificate NFT.
Primary issuance at a fixed, NAV-anchored price per facet, time-bounded. Buyers pay stablecoin; a 5% listing fee accrues to the platform pool and the remainder is earmarked as FLO proceeds funding the operator's acquisition and custody of the underlying stone. Unsold facets remain in the vault after the window closes.
A fully on-chain order book per stone. Posting a sell order locks the maker's facets in the vault; posting a buy order locks the stablecoin. Fills settle atomically — facets-versus-payment in one transaction — with a 1.5% taker fee. Orders cancel any time, returning the locked side in full.
Three contract-enforced exits: a collective sale vote, a majority squeeze-out (§06), and physical redemption — a 100% holder requests delivery; the vault burns the supply, force-transfers the certificate NFT to the holder, charges a 2% logistics fee, and ships the stone.
NAV is set by accredited gemmological appraisal and written on-chain by the operator; every
revision emits NAVUpdated. Per-facet value is simply NAV divided by the fixed
facet count. The contract keeps a high-water mark: a performance fee accrues
only on appreciation above the previous maximum NAV, and downward revisions never charge —
the standard asymmetry of fund accounting, enforced in code rather than by policy.
| Mechanism | Parameters (from contract) | Minority protection |
|---|---|---|
| Sale vote | initiate ≥5% · pass ≥30% YES · 30-day window · max 1/year | Gates spam votes; one facet = one vote, weight snapshotted at cast. |
| Squeeze-out | threshold ≥75% · price = NAV +15% · 7-day cooling · escrow claim 365 days | During cooling, the minority can challenge (if the squeezer drops below 75%) or trigger a defensive sale vote. Payouts sit in escrow a full year. |
| Redemption | requires 100% of facets · 2% fee | Only possible when no minority exists by construction. |
The squeeze-out mirrors Delaware §253 short-form merger economics: a supermajority can consolidate, but only at a premium to appraised value, with a challenge window and a long claim period so no holder can be quietly diluted or timed out.
| Fee | Rate | Charged on | Cash or accrual |
|---|---|---|---|
| Listing | 5.0% | each FLO purchase | cash into pool |
| Trading | 1.5% | every order-book fill (taker) | cash into pool |
| Performance | 15% | NAV appreciation above HWM | accrual (claim on future cash) |
| Custody | 2% p.a. | NAV, time-weighted, continuous | accrual |
| Redemption | 2.0% | NAV at physical delivery | cash |
Withdrawals are double-gated: the operator can withdraw at most the accrued counter and at most what is physically free in the vault after FLO-proceeds earmarks and open-order escrow — holder collateral can never fund fees.
Beyond fees, the operator may list stones it owns: illiquid, high-value inventory acquired at wholesale discounts and issued at independently appraised NAV. The spread between acquisition cost and appraised value is the platform's origination margin — the same economics that drive Masterworks' sourcing model, here settled on-chain. The market is two-sided by design: for dealers, the FLO converts inventory that takes years to place into liquidity in weeks, with the stone delivered into bonded custody before issuance opens.
Each listed stone maps to one certificate NFT carrying the laboratory report reference (lab + report number resolve to the issuing laboratory's public verification service). The physical stone sits in insured bonded storage; the certificate never leaves the vault contract except at redemption, when code — not paperwork — transfers it with the burn. The target custody partner for mainnet is a Geneva Free Port bonded facility with all-risk insurance; securing that partnership (with a signed LOI) is an explicit line item of the pre-seed budget.
Tokenised real-world assets are crystallising into regulated categories — MiCA in the EU, FIT21-era frameworks in the US. CaratShares is structured for that world rather than around it: a Cayman issuer with a Swiss operating company (target structure), exchange-grade KYC/AML at onboarding (Sumsub/Onfido integration budgeted), and an asset class — physical collectibles with lab-verified identity — that sits closer to titled goods than to securities in most analyses. Jurisdiction-specific legal opinions are part of the pre-seed legal budget; this section will be superseded by counsel-reviewed language in v1.0.
Smart-contract risk (mitigated by audit before mainnet), appraisal subjectivity (mitigated by multi-lab NAV signing and the HWM asymmetry), custody counterparty risk (mitigated by bonded insured storage and the certificate binding), liquidity risk inherent to unique assets (mitigated by fixed supply, NAV anchoring, and enforceable exits), and regulatory reclassification risk (addressed by the compliance-first structure above). A fuller risk annex will accompany v1.0.