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ERCS/erc-0000.md

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+---
+eip: 0000
+title: Diffusive Tokens
+description: A fungible token that mints new tokens on transfer, charges a per-token native fee, and enforces a capped supply.
+author: James Savechives (@jamesavechives)
+discussions-to: https://ethereum-magicians.org/t/discussion-on-eip-0000-diffusive-tokens/20890
+status: Draft
+type: Standards Track
+category: ERC
+created: 2024-12-07
+---
+
+## Abstract
+
+This ERC proposes a standard for a new type of fungible token, called **Diffusive Tokens (DIFF)**. Unlike traditional [ERC-20](./eip-20.md) tokens, transferring DIFF tokens does not decrease the sender’s balance. Instead, it *mints* new tokens directly to the recipient, increasing the total supply on every transfer action. A fixed native currency fee is charged per token transferred, and this fee is paid by the sender to the contract owner. The supply growth is limited by a maximum supply set by the owner. Token holders can also burn their tokens to reduce the total supply. These features enable a controlled, incentivized token distribution model that merges fungibility with a built-in economic mechanism.
+
+## Motivation
+
+Traditional [ERC-20](./eip-20.md) tokens maintain a constant total supply and simply redistribute balances on transfers. While this model is widespread, certain use cases benefit from a token design that continuously expands supply during transfers, simulating a controlled "diffusion" of value. The Diffusive Token model may be suitable for representing claims on real-world goods (e.g., a product batch like iPhone 15 units), digital goods, or controlled asset distributions where initial token distribution and ongoing availability need to be managed differently.
+
+This model also includes a native currency fee per token transferred, incentivizing careful, value-driven transfers and providing a revenue stream for the token’s issuer. The maximum supply cap prevents unbounded inflation, ensuring long-term scarcity. The ability for owners to burn tokens to redeem underlying goods or services directly maps on-chain assets to real-world redemptions.
+
+## Specification
+
+### Terminology
+
+- **Diffusive Token**: A fungible token unit that is minted on transfers.
+- **Max Supply**: The maximum total supply the token can reach.
+- **Transfer Fee**: A fee in native blockchain currency (e.g., ETH) that must be paid by the sender for each token transferred. The total fee = `transferFee * amount`.
+- **Burn**: The action of destroying tokens, reducing both the holder’s balance and the total supply.
+
+### Data Structures
+
+- **Balances Mapping**: `balances[address] = uint256` tracks the number of tokens owned by each address.
+
+  ```solidity
+  mapping(address => uint256) private balances;
+  ```
+
+- **Total Supply and Max Supply**:
+
+  ```solidity
+  uint256 public totalSupply;
+  uint256 public maxSupply;
+  ```
+
+- **Transfer Fee**:
+
+  ```solidity
+  uint256 public transferFee; // fee per token transferred in wei
+  address public owner;
+  ```
+
+  The `owner` sets and updates `transferFee` and `maxSupply`.
+
+### Token Semantics
+
+1. **Minting on Transfer**
+   When a transfer occurs from `A` to `B`:
+   - `A` does not lose any tokens.
+   - `B` receives newly minted tokens (increasing their balance and totalSupply).
+   - The `totalSupply` increases by the transferred amount, but must not exceed `maxSupply`.
+
+2. **Fixed Transfer Fee in Native Currency**
+   Each transfer requires the sender to pay `transferFee * amount` in the native currency. If `msg.value` is insufficient, the transaction reverts.
+
+3. **Maximum Supply**
+   If a transfer would cause `totalSupply + amount > maxSupply`, it must revert.
+
+4. **Burning Tokens**
+   Token holders can burn tokens to:
+   - Reduce their balance by the burned amount.
+   - Decrease `totalSupply` by the burned amount.
+
+   This can map to redeeming underlying goods or simply deflating the token.
+
+### Interface
+
+The DIFF standard aligns partially with [ERC-20](./eip-20.md), but redefines certain behaviors:
+
+**Core Functions:**
+
+- `function balanceOf(address account) external view returns (uint256);`
+
+- `function transfer(address to, uint256 amount) external payable returns (bool);`
+
+  - **Modified behavior**: Mints `amount` tokens to `to`, requires `msg.value >= transferFee * amount`.
+
+- `function burn(uint256 amount) external;`
+
+  - Reduces sender’s balance and `totalSupply`.
+
+**Administration Functions (Owner Only):**
+
+- `function setMaxSupply(uint256 newMax) external;`
+
+- `function setTransferFee(uint256 newFee) external;`
+
+- `function withdrawFees(address payable recipient) external;`
+
+  - Withdraws accumulated native currency fees.
+
+**Optional Approval Interface (For Compatibility):**
+
+- `function approve(address spender, uint256 amount) external returns (bool);`
+- `function transferFrom(address from, address to, uint256 amount) external payable returns (bool);`
+
+  - **Modified behavior**: Similar to `transfer`, but uses allowance and still mints tokens to `to` rather than redistributing from `from`.
+
+### Events
+
+- `event Transfer(address indexed from, address indexed to, uint256 amount);`
+
+  Emitted when tokens are minted to `to` via a transfer call.
+
+- `event Burn(address indexed burner, uint256 amount);`
+
+  Emitted when `amount` of tokens are burned from an address.
+
+- `event FeeUpdated(uint256 newFee);`
+
+  Emitted when the owner updates the `transferFee`.
+
+- `event MaxSupplyUpdated(uint256 newMaxSupply);`
+
+  Emitted when the owner updates `maxSupply`.
+
+### Compliance with ERC-20
+
+The DIFF standard implements the ERC-20 interface but significantly alters the `transfer` and `transferFrom` semantics:
+
+- **Fungibility**: Each token unit is identical and divisible as in ERC-20.
+- **Balances and Transfers**: The `balanceOf` function works as normal. However, `transfer` and `transferFrom` no longer redistribute tokens. Instead, they mint new tokens (up to `maxSupply`).
+- **Approvals**: The `approve` and `transferFrom` functions remain, but their logic is unconventional since the sender’s balance is never reduced by transfers.
+
+While the DIFF standard can be seen as ERC-20 compatible at the interface level, the underlying economics differ substantially.
+
+## Rationale
+
+**Use Cases**:
+
+- **Real-World Asset Backing**: A manufacturer can issue DIFF tokens representing a batch of products (e.g., iPhones). Each token can be redeemed (burned) for one physical item.
+
+- **Fee-Driven Incentives**: The transfer fee ensures that infinite minting by constant transferring is economically disincentivized. The fee also supports the token issuer or provides a funding mechanism.
+
+**Design Decisions**:
+
+- **Unlimited Minting vs. Max Supply**: Allowing minting on every transfer provides a “diffusive” spread of tokens. The `maxSupply` prevents uncontrolled inflation.
+
+- **Burn Mechanism**: Enables redemption or deflation as tokens are taken out of circulation.
+
+- **Owner Controls**: The owner (e.g., issuer) can adjust fees and max supply, maintaining flexibility as market conditions change.
+
+## Backwards Compatibility
+
+The DIFF standard is interface-compatible with ERC-20 but not behaviorally identical. Any system integrating DIFF tokens should understand the difference in minting on transfer.
+
+- **Wallets and Exchanges**: Most ERC-20 compatible tools can display balances and initiate transfers. However, the unusual economics (mint on transfer) may confuse users and pricing mechanisms.
+- **Allowances and TransferFrom**: Still implemented for interoperability, but the expected logic (debiting `from` balance) does not apply.
+
+## Test Cases
+
+1. **Initial Conditions**:
+   - Deploy contract with `maxSupply = 1,000,000 DIFF`, `transferFee = 0.001 ETH`.
+   - `totalSupply = 0`.
+   - Owner sets parameters and verifies via `maxSupply()` and `transferFee()` getters.
+
+2. **Minting on Transfer**:
+   - User A calls `transfer(B, 100)` with `msg.value = 0.1 ETH` (assuming `transferFee = 0.001 ETH`).
+   - Check `balances[B] == 100`, `totalSupply == 100`.
+   - Check that the contract now holds 0.1 ETH from the fee.
+
+3. **Exceeding Max Supply**:
+   - If `totalSupply = 999,950` and someone tries to transfer 100 tokens, causing `totalSupply` to exceed `1,000,000`, the transaction reverts.
+
+4. **Burning Tokens**:
+   - User B calls `burn(50)`.
+   - Check `balances[B] == 50`, `totalSupply == 50` less than before.
+   - `Burn` event emitted.
+
+5. **Updating Fee and Withdrawing Funds**:
+   - Owner calls `setTransferFee(0.002 ETH)`.
+   - `FeeUpdated` event emitted.
+   - Owner calls `withdrawFees(ownerAddress)`.
+   - Check that `ownerAddress` receives accumulated fees.
+
+## Reference Implementation
+
+A reference implementation is provided under the asset folder in the EIPs repository. The implementation includes:
+
+- [`DiffusiveToken.sol`]((../assets/eip-0000/DiffusiveToken.sol)): A basic contract implementing the DIFF standard.
+- Interfaces and helper contracts for testing and demonstration purposes.
+
+## Security Considerations
+
+- **Reentrancy**: Handle fee transfers using the Checks-Effects-Interactions pattern. Consider `ReentrancyGuard` from OpenZeppelin to prevent reentrant calls.
+- **Overflow/Underflow**: Solidity 0.8.x guards against this by default.
+- **Contract Balance Management**: Ensure enough native currency is sent to cover fees. Revert on insufficient fees.
+- **Access Control**: Only the owner can update `transferFee` and `maxSupply`. Use proper `onlyOwner` modifiers.
+
+## Copyright
+
+Copyright and related rights waived via [CC0](../LICENSE.md).