How TokenFlow Works

overview tokenflow operates as a fully on chain, non custodial index protocol it allows users to convert eth into a basket of predefined assets and receive a fundshare token representing ownership of that basket unlike centralized funds, tokenflow never takes custody of assets — all operations are performed transparently via smart contracts deployed on ethereum users interact through a simple flow deposit eth into the chosen fund receive fundshare tokens that represent a proportional claim on the fund’s assets trade fundshares on dexs, or redeem them anytime for eth each fund, or vault , has its own set of parameters, underlying assets, fee structure, and self governance — making every index token a mini protocol within the tokenflow ecosystem key components in the flow user wallet — holds eth and interacts with the vault contracts fundvault (smart contract) — manages assets, executes swaps, mints and burns fundshares, and tracks nav (net asset value) fundshare token (erc 20) — the tokenized representation of ownership in a given fund dex integrations (e g , uniswap) — provide liquidity for secondary trading of fundshares oracle router — provides price data for nav calculation, impact caps, and rebalancing fee engine — handles mint/redeem fees and trading tax flows for buyback and burn operations step by step flow let’s walk through a complete tokenflow user journey step 1 deposit eth when a user deposits eth into a tokenflow vault the vault contract automatically swaps eth into the tokens defined in that index’s composition (for example pepe, spx6900, shiba for the memecoin index ) swaps are executed via uniswap’s universal router , with strict price impact and slippage limits enforced by the protocol the system calculates the current nav per share and mints fundshare tokens proportionally to the user’s deposit example user deposits 10 eth into the memecoin index the vault buys 4 eth worth of pepe, 3 eth of spx6900, and 3 eth of shiba a 0 3% deposit fee (0 03 eth) is deducted the user receives fundshares equivalent to 9 97 eth of value, based on the fund’s current nav step 2 receive fundshare tokens the user’s wallet now holds fundshare tokens , an erc 20 token specific to the chosen index (e g , $flowmemefor the memecoin index fund) fundshares are fully composable across defi — they can be held, traded, used as collateral, or staked in other protocols each fundshare represents a pro rata claim on the assets held by the vault the nav per share changes as the value of underlying tokens changes, meaning that holders gain or lose proportionally with the market performance of the index’s constituents step 3 secondary trading (dex layer) all fundshare tokens are listed on uniswap (and later other dexs) in liquidity pools, typically paired with eth (e g , flowmeme/eth) traders can buy or sell fundshares freely on dexs arbitrageurs help keep the market price of fundshares aligned with their nav if market price > nav → arbs mint new shares and sell them if market price < nav → arbs buy cheap fundshares and redeem for nav value this mechanism mirrors how etfs trade in traditional finance and keeps fundshare prices efficiently balanced with the vault’s actual holdings step 4 the deflationary fee loop every time a fundshare token is traded on uniswap, a small transaction tax is applied (configurable per index) 80% of this fee is automatically used to purchase more fundshares , which triggers underlying memecoin purchases inside the vault the purchased fundshares are then burned , reducing total supply and making the token deflationary the remaining 20% may be allocated to the vault’s treasury or operational funds result every dex trade makes the fund stronger and more scarce, while continuously generating buy pressure for the assets inside it this creates a flywheel effect more trading → more burns → higher backing → greater scarcity → more demand step 5 redeem for eth (exit flow) when a user wants to exit they return their fundshare tokens to the vault the vault calculates the user’s share of the underlying assets based on current nav the vault sells the corresponding portion of assets for eth using uniswap, applies a small redemption fee (e g , 0 3%), and transfers the eth back to the user example if the user redeems 1,000 fundshares worth 5 eth of underlying value, they receive approximately 4 985 eth (after a 0 3% redemption fee) this ensures complete on chain redemption without intermediaries or custodial risk behind the scenes — smart contract mechanics when a user interacts with the vault, multiple processes occur atomically oracle validation the system checks the latest prices for each asset via the oracle router if data is stale (older than 2 hours) or price deviation exceeds thresholds, the transaction reverts swap execution the tradeexecutor library constructs and validates uniswap universal router calldata to ensure swaps match expected token allocations impact limits each vault enforces a maxpriceimpactbps (e g , 500 = 5%) to prevent manipulation or front running on low liquidity tokens nav update the vault recalculates total tvl (in eth) after swaps to update nav per share event emissions each transaction emits structured events (deposited, redeemed, rebalanced, etc ) for subgraph indexing and analytics dashboards this automation makes tokenflow trustless yet highly transparent , allowing users to verify every operation through blockchain explorers or subgraphs continuous rebalancing to maintain accuracy and exposure integrity each fund defines target weights for its underlying tokens the rebalancer periodically adjusts holdings to keep actual weights within a defined drift threshold (e g , ±5%) rebalancing is executed using twap (time weighted average price) orders to minimize slippage and mev exposure all rebalances are visible on chain via emitted events example if pepe rises 30% in price, the vault will sell some pepe and buy spx6900/shiba to restore balance, maintaining consistent exposure per vault governance flow each vault is self governed by its respective fundshare token holders through on chain proposals and votes, holders can adjust index weights add or remove tokens from the basket modify fee parameters (within defined caps) trigger rebalances or emergency actions this ensures that every index evolves with its community while maintaining decentralization and flexibility there is no global tokenflow token — each fundshare token is its own governance layer transparency & verifiability everything in tokenflow is on chain and queryable vault state accessible via getsnapshot() — includes nav, holdings, supply, and weights transactions all mints, burns, trades, and rebalances are public events oracles show live eth denominated prices for each constituent token fees visible via the feecollector’s on chain balances and historical data no hidden logic, no opaque pricing — tokenflow is designed for verifiability and open auditing integration across defi because fundshares are erc 20 compliant, they integrate seamlessly into wallet swap uis (metamask, rabby, okx, etc ) dex aggregators (1inch, paraswap, 0x, cowswap) portfolio trackers (zapper, debank, zerion) yield vaults (balancer boosted pools, yearn strategies, etc ) defi users can buy or use fundshares just like any other erc 20 token — without needing to understand the underlying complexity user flow diagram (for designers) user flow diagram (for designers) diagram description “tokenflow lifecycle” diagram description “tokenflow lifecycle” \[user wallet] ↓ deposit eth \[fundvault] → \[swap router] executes eth → basket → \[oracle router] fetches prices → mints \[fundshare token] to user → stores assets in vault \[user wallet] holds fundshare ↓ \[uniswap pool] allows trading with small tax ↓ \[fee engine] uses 80% of tax → deposit + burn received fundshares ↓ reduced supply → increased scarcity → buy pressure ↓ users can redeem fundshares anytime for eth \[user wallet] ↓ deposit eth \[fundvault] → \[swap router] executes eth → basket → \[oracle router] fetches prices → mints \[fundshare token] to user → stores assets in vault \[user wallet] holds fundshare ↓ \[uniswap pool] allows trading with small tax ↓ \[fee engine] uses 80% of tax → deposit + burn received fundshares ↓ reduced supply → increased scarcity → buy pressure ↓ users can redeem fundshares anytime for eth this diagram can be rendered visually as a circular flow or “etf flywheel” for website or documentation graphics this diagram can be rendered visually as a circular flow or “etf flywheel” for website or documentation graphics summary stage user action protocol action outcome deposit send eth buy tokens, mint fundshares user gets index exposure hold keep fundshares nav tracks token performance value rises/falls with market trade swap on uniswap fees trigger buy & burn fund becomes deflationary redeem burn fundshares sell tokens, return eth exit anytime govern vote per vault adjust weights, fees, assets community led evolution tokenflow makes complex defi exposure as simple as holding one token — while each trade and rebalance continuously reinforces the ecosystem around it