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Home»ADOPTION NEWS»Understanding Closed Loop Tokens: Enhanced Security and Customization
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Understanding Closed Loop Tokens: Enhanced Security and Customization

By Crypto FlexsJune 30, 20243 Mins Read
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Understanding Closed Loop Tokens: Enhanced Security and Customization
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According to The Sui Blog, closed-loop tokens (CLTs) are emerging as a major innovation in the blockchain space, offering enhanced security, compliance, and customization for specific applications.

The need for closed-loop tokens

The open-ended nature of the Sui Coin standard makes it useful for many use cases, but falls short in scenarios that require specific constraints. For example, certain applications may require tokens that can only be used for specific purposes, approved accounts, or within designated marketplaces. Loyalty programs, in-game currencies, and restricted markets often benefit from controlled environments where tokens cannot be traded or used outside of their intended context.

Regulatory compliance also requires restrictions on token use to ensure that only verified or approved entities can hold and use these tokens. Implementing these controls will help mitigate the risk of misuse, fraud, and regulatory violations, and create a secure economic system with enforceable rules and restrictions.

Opportunities unlocked with closed loop tokens

CLT provides developers with a higher level of control and customization over how tokens are used and transferred within their applications. Using the CLT standard in the Sui framework, developers can:

  • Token Usage Restrictions For approved applications.
  • Custom policy settings For transfers, spending and conversions.
  • Add arbitrary limit This covers transferring tokens between user addresses, using tokens, and using tokens in smart contracts.

These features enable a wide range of possibilities. For example, tokens can be designed to prevent on-chain transactions, making them ideal for loyalty programs or in-game currencies where speculation is undesirable. You may also want to comply with regulatory requirements by limiting use to verified accounts or certain services.

How Closed Loop Tokens Work

The builder implements CLT via the sui::token module, which differs from traditional coins in that it lacks storage capabilities. This means that CLT cannot be wrapped, stored in dynamic fields, or transferred freely unless a custom policy allows it. It can only be owned by an account and cannot be stored in applications, but can be used.

CLT’s authorization mechanism is called ActionRequest, which allows token holders to specify which actions (transfers, spends, conversions) are permitted and enforceable through predefined rules. TokenPolicy is a shared object that token creators can create using TreasuryCap to specify conditions for transferring, spending, or converting tokens. These policies are enforced by programmable rules within TokenPolicy and implemented as a separate Move module, allowing for modular and reusable policy definitions.

To solve the token storage problem, CLT utilizes the spend method, where spent tokens can be burned directly or passed to TokenPolicy as spent_balance. This balance cannot be reused and can only be burned, ensuring strict control over token lifecycle and usage.

Close the loop

Closed-loop tokens provide a level of control and customization not possible with the Sui Coin standard or common token standards found in other blockchain protocols. By allowing developers to impose specific rules and restrictions on token usage, CLT opens up new possibilities for secure, compliant, and specialized applications. The adoption and implementation of CLT is expected to play a significant role in shaping the future of DeFi and digital assets.

NOTE: This content is for general educational and informational purposes only and should not be construed or relied upon as an endorsement or recommendation to buy, sell, or hold any asset, investment, or financial product, and does not constitute financial, legal, or tax advice. not.

Image source: Shutterstock



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