Fractionalization

This section explains how Silsilat fractionalizes gold-backed pawn receipts (SAG Tokens) into tradable units, why this is essential for liquidity and inclusion, and how the process maintains Shariah and regulatory compliance while remaining fully auditable on Hedera.

The Fractionalization Module (FM) enables Silsilat to transform a single gold-backed loan asset into multiple, smaller digital investment units. This innovation makes real-world, asset-backed finance accessible to everyone — from retail investors to institutions — while ensuring that every fraction remains verifiably linked to a specific physical collateral.

Fractionalization sits at the intersection of tokenization, liquidity pooling, and compliance, ensuring that all fractions collectively represent one true, fully-backed gold asset.

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Why Fractionalization Matters

Traditional pawn-based and gold-backed lending is capital-intensive and opaque. Investors cannot easily participate without owning the entire loan or collateral.

Silsilat’s fractionalization framework solves this by breaking each tokenized asset (SAG Token) into micro-units (fSAG) that can be transparently priced, traded, and redeemed.

Benefit	Description
Accessibility	Lowers entry barriers for retail and micro-investors.
Liquidity	Enables faster matching between capital providers and pawnshops.
Diversification	Investors can hold fractions of multiple assets instead of one large exposure.
Traceability	Every fraction inherits the audit trail and compliance record of the parent SAG Token.
Ethical Finance	Shariah-compliant structure based on shared ownership, not interest.

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Core Components

Component	Function
Fractionalization Engine (FE)	Smart Node module that divides each SAG Token into standardized units (fSAG).
Fraction Registry	On-chain index mapping parent SAG → fractions and ownership distribution.
Investor Distribution Layer	Allocates fractions to investors based on pool participation or direct purchase.
Custodian Ledger	Licensed Digital Asset Custodian holds fractional assets under insured accounts.
Compliance Hook	Policy Agent verifies fractional ownership, KYC/AML adherence, and Shariah rules.

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Token Standards and Structure

Token Type	Symbol	Underlying Asset	Fraction Size	Use Case
Parent Token	SAG	Physical gold collateral	1:1 with asset	Pawnshop loan representation
Fraction Token	fSAG	Portion of SAG	Variable (default 1/1000)	Investor participation unit

Example: A RM 10,000 SAG Token may be split into 1,000 fSAGs, each worth RM 10 nominal value.

All fSAGs contain:

• Parent sag_id reference

• Fraction number (e.g., 0001/1000)

• Policy hash

• Custody and compliance metadata

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🧾 5️⃣ Fractionalization Workflow

Example Event Payload

{
  "event": "fractionalization_complete",
  "sag_id": "SAG-2025-01008",
  "fraction_count": 1000,
  "fraction_unit_value_myr": 10,
  "policy_hash": "sha256:8b1e0ac...",
  "ipfs_cid": "bafybeifractionproof",
  "timestamp": "2025-10-26T11:10:00Z"
}

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Distribution Models

Model	Description	Best For
Liquidity Pool Allocation	Fractions automatically distributed to investors based on pool contribution.	Passive investors
Direct Purchase Offering	Fractions listed on Silsilat marketplace for individual buyers.	Retail participation
Institutional Tranches	Bulk fractions sold to approved funds or banks.	Institutional investors
Secondary Trading (Future)	fSAG tokens traded on regulated DEXs or alternative markets.	Liquidity and price discovery

Each model maintains custodial verification and HCS event logging, preventing double-ownership or unverified transfers.

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Fraction Accounting Logic (Simplified)

def fractionalize(sag_id, total_value, n_fractions):
    fraction_value = total_value / n_fractions
    for i in range(n_fractions):
        fSAG = {
            "parent_sag_id": sag_id,
            "fraction_id": f"{i+1}/{n_fractions}",
            "value_myr": fraction_value,
            "policy_hash": current_policy_hash
        }
        mint_fSAG_token(fSAG)
    publish_to_HCS("fractionalization_complete", sag_id)

The Fraction Engine ensures:

• Exact fractional parity (no rounding errors).

• Compliance inheritance from the parent SAG policy.

• Each fraction’s traceability through IPFS + HCS linkage.

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Governance & Compliance in Fractionalization

• Policy Engine Enforcement: Fractionalization can only proceed if:

  • The parent SAG is verified and under compliant custody.

  • All investors are KYC-approved and meet jurisdictional suitability.

• Shariah Compliance:

  • Fractions represent musharakah (joint ownership) of a real asset — not debt trading (bay al-dayn).

  • Profits are distributed proportionally based on actual asset yield.

• Regulatory Oversight:

  • Each fSAG issuance recorded to a Fraction Registry Topic for regulator visibility.

  • Custodian validates every fractional ownership transfer.

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Custody and Insurance

All fractional tokens are held under the Licensed Digital Asset Custodian to ensure legal recognition and insurance protection.

Custody Role	Responsibility
Wallet Management	Custodian manages segregated wallets for each fSAG tranche.
Reconciliation	Daily matching of fractional ownership vs. on-chain registry.
Insurance	fSAG holdings insured under DACP’s master policy.
Reporting	Monthly reports submitted to Silsilat Treasury and regulators.

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Redemption and Buyback

When the underlying loan matures:

1. Pawnshop redeems the gold collateral by repaying the loan amount + profit.

2. Liquidity Pool or Treasury Agent aggregates fractional returns.

3. Custodian burns all fSAG tokens corresponding to the redeemed SAG.

4. Investors receive principal + yield in proportion to their holdings.

{
  "event": "fractional_redemption",
  "sag_id": "SAG-2025-01008",
  "fractions_redeemed": 1000,
  "yield_percent": 8.0,
  "timestamp": "2025-10-26T11:40:00Z"
}

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Risk Controls and Safeguards

Risk	Mitigation
Over-fractionalization	Enforced 1:1 mapping between fSAG total and SAG value.
Custody Loss	Insured DACP custody; no self-custody exposure.
Regulatory Breach	Real-time compliance hooks and audit topic.
Market Manipulation	Restricted to verified marketplaces with KYC/AML control.
Price Volatility	Fixed redemption value linked to SAG valuation policy.

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Business and Social Impact

Stakeholder	Benefit
Pawnshops	Access larger liquidity pools instantly.
Investors	Participate in gold-backed finance with small capital outlay.
Regulators	Monitor all fractional asset flows in real time.
Communities	Democratized access to ethical, asset-backed returns.

This model supports financial inclusion, transparency, and shared prosperity — especially in emerging markets where micro-investment opportunities are limited.

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Summary

The Fractionalization Module converts Silsilat’s tokenized assets into inclusive, verifiable, and tradable micro-units — bridging institutional stability with retail accessibility.

Key Attributes

• 1:1 traceability from gold collateral → SAG → fSAG.

• Fully auditable via HCS + IPFS.

• Custody-insured through licensed DACPs.

• Shariah-compliant shared ownership model.

• Scalable across assets and geographies.