Frequently Asked Questions¶

Common questions about the Energy Substantiation platform.

About Tokenization¶

What are RWA (Real World Asset) tokens?¶

RWA tokens are blockchain tokens backed 1:1 by physical assets. Unlike synthetic tokens or derivatives, RWA tokens represent direct legal claims on underlying commodities through instruments like Volumetric Energy Receipts (VERs).

Why tokenize commodities?¶

Tokenization provides benefits over traditional commodity investment:

What is a Volumetric Energy Receipt (VER)?¶

A VER is the legal instrument backing each token. It represents an "undivided interest in commingled goods" - a recognized legal structure under UCC Article 7. VERs provide bankruptcy-remote ownership of physical commodities held by a qualified custodian.

What units are tokens denominated in?¶

Tokens use standard commodity units - Each token type is denominated in the standard trading unit for that commodity (e.g., barrels for crude oil, MMBTU for natural gas).

Custody is in MMBTU - The underlying Volumetric Energy Receipts (VERs) are denominated in MMBTU (energy content), which allows different grades to back the same token.

Tokens vs ETFs¶

How are tokens different from commodity ETFs like USO?¶

What is contango and why does it matter?¶

Contango occurs when futures prices exceed spot prices. ETFs must "roll" contracts monthly, selling low and buying high. WTI futures were in contango 82% of trading days from 2006-2020, creating significant tracking error. Tokens avoid this because they're backed by physical commodities, not futures.

Tax Questions¶

How are tokens taxed?¶

For individuals, tokens are treated as property:

• Purchase: Not a taxable event
• Sale/burn: Capital gains based on holding period
• Long-term (>1 year): Preferential rates
• Short-term: Ordinary income rates

Unlike commodity ETFs, there's no mark-to-market taxation or 60/40 rule.

Do I receive a K-1 form?¶

No. Token holders receive 1099 forms, not K-1s. This eliminates:

• Complex partnership accounting
• Phantom income on fund activities
• Multi-state tax filing requirements
• Delayed tax form delivery

Technical Questions¶

What blockchain do tokens run on?¶

WTIC tokens are ERC-20 tokens on Ethereum Mainnet (Layer 1). The contracts also support EIP-2612 for gasless approvals. Smart contracts were audited by Sigma Prime and are non-upgradeable.

How is custody handled?¶

Physical commodities are held by a third-party qualified custodian who provides:

• Segregated storage for token holder assets
• Regular audits and certifications
• Real-time transparency reporting
• Bankruptcy-remote asset protection

General Questions¶

What is Energy Substantiation?¶

Energy Substantiation is a tokenized asset platform that connects suppliers (who can deliver physical commodities) with buyers (who want exposure to commodity returns). Trading happens through daily Dutch auctions that find fair market prices.

For Suppliers¶

How do I start offering on EnSub?¶

1. Complete the onboarding process with EnSub
2. Configure your account locations
3. Set your capacity limits
4. Create offers specifying quantity, discount, location, and financing terms

What is reserve balance?¶

Reserve balance tracks your net token obligation. A negative reserve balance (e.g., -5,000) means you have obligations for 5,000 units. This increases when you mint (more obligations) and decreases when tokens are burned (fewer obligations).

How is my capacity calculated?¶

Available Capacity = Max Token Limit - |Reserve Balance|

For example, if your max limit is 10,000 and your reserve balance is -3,000, you can offer up to 7,000 more tokens.

For Buyers¶

How do I purchase tokens?¶

1. Fund your account with USD
2. Create a mint order specifying quantity (in tokens or USD)
3. Wait for the daily auction
4. If matched, tokens appear in your account

What happens when I burn tokens?¶

1. Your tokens are destroyed
2. A supplier's obligation is reduced
3. You receive cash settlement
4. A burn fee is deducted from your proceeds

Auction Questions¶

When does the auction run?¶

The auction runs daily. Contact EnSub for specific timing.

Why was my order "killed"?¶

Orders are killed if they fail pre-auction validation:

• Mint orders: Insufficient available balance
• Burn orders: Insufficient token balance
• Offers: Capacity exceeded or invalid parameters

What's the difference between Day and GTC orders?¶

Balance Questions¶

What are the different balance types?¶

How is available balance calculated?¶

Available Trading Balance = Internal Balance + External Balance + Credit Line

This is the amount available for placing orders.

Why did my balance change unexpectedly?¶

Balances change due to:

• Auction results (fills)
• Fees charged
• Settlement operations

Technical Questions¶

What happens if the auction fails?¶

The entire auction runs within a database transaction. If any phase fails, all changes are rolled back and no balances are affected.

How are burns allocated to suppliers?¶

Burns are allocated using these priorities:

1. Lowest weighted average discount first (worst terms for supplier)
2. Nearest financing expiration (tie-breaker)
3. Largest remaining quantity (final tie-breaker)

Can I have multiple offers at different prices?¶

Yes. Suppliers can have multiple active offers at different discount levels, quantities, and locations. Total offers cannot exceed available capacity.

What is the reference ID on fills?¶

Reference IDs link related fills together. For example, a buyer's mint fill and the corresponding supplier's supply fill share a reference ID, allowing you to trace the complete transaction.

Account Questions¶

How do I increase my capacity limit?¶

Contact EnSub to discuss capacity limit increases. You'll need to provide documentation of your capability.

Can I have multiple account locations?¶

Yes. Suppliers can configure multiple account locations and create offers referencing different locations.

How do I cancel an order?¶

GTC orders can be canceled anytime before they match. Day orders can be canceled before the auction runs. Matched orders (fills) cannot be canceled.

Still Have Questions?¶

Contact EnSub support for additional assistance.