# Tokenized Units

Unlike other fund tokenization platforms that add blockchain complexity to the already convoluted processes of traditional investment funds, Fume brings the **entire administration process on-chain**, simplifying fund management by removing intermediaries. Since the investor registry is maintained directly on the blockchain, the investment vehicle’s units—whether tokenized fund units or tokenized notes—are inherently tokenized.

## ERC-6909 Standard

Fume utilizes the [**ERC-6909**](https://eips.ethereum.org/EIPS/eip-6909) token standard, which is a minimal and gas-efficient approach for managing multiple types of tokens within a single contract. It provides a simplified alternative to the more complex [**ERC-1155**](https://ethereum.org/en/developers/docs/standards/tokens/erc-1155/) multi-token standard and is already being used by renowned projects such as [**Uniswap V4**](https://docs.uniswap.org/contracts/v4/guides/ERC-6909). 

This allows us to track on a individual investment level characteristics such as high watermark, fees and lockup period. Each investment effectively becomes its own share class. 

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Learn more about ERC-6909 and how we use it in [our blog article](https://www.fume.finance/blog/deep-dive-into-the-new-erc6909-token-standard). 
{% endhint %}

## Why Not ERC-20?

While ERC-20 tokens are typically used for fungible assets, they are not well-suited for tokenizing fund units. Although fund units might appear fungible, they often have key distinctions:

* **Subscription Timing**: Investors subscribing at different times might have varying lock-up periods.
* **Fee Structures**: Different investors may be subject to different entry/exit fees.
* **High-Water Marks**: Performance fees can vary depending on the specific investment timeline, requiring a unique high-water mark for each investment.

For these reasons, Fume needs a mechanism that allows differentiation between unit series to ensure fair treatment for all investors. **ERC-6909** offers the flexibility to achieve this by treating each unit series as a distinct asset, while still allowing for cohesive and efficient management.

## Security Tokens

The tokenized fund units are considered **security tokens**, which means they are subject to regulatory restrictions. These tokens cannot be transferred as freely as standard cryptocurrencies or NFTs due to compliance requirements. For regulatory reasons, the **fund manager must always know who the unit-holders are**, ensuring that the fund remains compliant with applicable laws.

Secondary transfers of tokenized units are allowed, but only among already **whitelisted (KYC'ed) wallets** that have been approved by the fund manager. This guarantees that all holders of the tokenized units meet compliance requirements before any transfer occurs.