Core Concepts

Safe Tokens

Safe Tokens are ERC20 wrapper tokens that can add compliance checks to any ERC20 token.

Safe Tokens are ERC20 wrapper tokens that add KYC/AML checks to an underlying asset. Safe Tokens are ERC20 compatible which means nearly all DeFi protocols can be traded with compliance. For instance, a user can wrap USDC into, and then trade that on Uniswap with only KYC/AML compliant counterparties.

  • Safe Tokens can only be traded by wallets that are KYC/AML verified
  • Safe Tokens create permissioned pools on permissionless protocols
  • KYC/AML checks are executed at the smart contract level
  • Any token can be wrapped into a Safe Token (i.e.,


Credentials are attestations of user attributes, such as KYC or AML, that are stored on the blockchain. These on-chain Credentials are accessible to users via their wallets and are managed through BlueID, a credential aggregation solution that eliminates the need for users to repeatedly undergo KYC onboarding.

When a user initiates a Safe Token transaction, their BlueID is checked for the necessary Credentials. All compliance checks are performed verifiably at the smart contract level. If the user does not possess the required Credentials, the Safe Token transaction will fail. This approach provides a streamlined and secure way to ensure compliance with regulatory requirements, without imposing additional frictions on users.

Types of Credentials

Currently, Blue Network provides support for various types of credentials, including KYC, KYB, AML, Jurisdiction, and Accredited Investor. These credentials can be represented in different forms, such as non-transferrable NFTs/SBTs or verifiable credentials. The issuance and management of credentials are handled by Credential Issuers, who are responsible for various on-chain management tasks such as minting, burning, and setting expiration dates, among others.

To find out more information about credentials and how they work on Blue Network, you can click here.

Wrapper Token that requires KYC/AML

At a technical level, the wrapper token contains code that restricts the transfer() function to only execute if both wallets in the transaction pass the Credential checks.

  • The wrapper token (i.e., adds the credential check functionality
  • The wrapper token is 1:1 redeemable for the underlying token. This ensures that the value of the wrapper token (i.e., stays equal to the underlying token (i.e., DAI)

The wrapping mechanism adds the compliance-related code to the token. This way, when there is a trade in the wrapper token there is also a credential check happening. Without the wrapper, there would be no way to add conditional credential checks as the major token standards like ERC20 do not support this.

The wrapper implementation allows the value associated with the underlying token to be "carried through" and recognized when trading the wrapper token (i.e., This enables users to trade the underlying token’s value (since the wrapper token is always 1:1 redeemable) in a compliant manner (since the wrapper token contains compliance functionality).

What is a Wrapper Token?

A wrapper token is a token whose value is tied to an underlying token. An amount of the underlying token is locked in a smart contract, and in return this allows an equivalent amount of wrapped tokens to be minted.

A wrapper token is a cryptocurrency token pegged to the value of another token. It’s called a wrapper token because the original token is put in a wrapper, a kind of smart contract that allows the wrapped version to be traded with KYC/AML while still carrying the value of the underlying token. The most common use case for wrapped tokens is bridging the value of an asset from one blockchain to another (i.e., ETH on Ethereum is bridged to WETH on Avalanche).

Wrapping assets can be useful for several reasons, including:

  • To extend the functionalities of an existing token (i.e., DAI) in conjunction new functionalities (i.e., add KYC/AML verification to DAI)
  • Allow a wrapped token to behave like an ERC20, i.e., Wrapped ether (WETH)
  • Allow the use of tokens outside its native blockchain, i.e., Wrapped Bitcoin (WBTC)

De-Peg Risk

There should not be any De-Peg or Redemption risk for the following reasons:

  • Safe Tokens are always redeemable 1:1 for the underlying tokens
  • All underlying tokens are verifiably stored in smart contracts, visible & transparent to everyone
  • No compliance check is needed to redeem underlying tokens for Safe Tokens

De-Peg or Redemption Risk occurs when there is low transparency over the underlying assets that the wrapped assets represent. This can often occur during complex bridging activities (i.e., BTC --> wBTC).

3. Trade