A new tokenized fund on decentralized marketplace Archblock allows USDC holders and on-chain investors outside the US to access the yields of short-term US Treasury bills.
The fund’s target yield is 5%, a figure slightly below the 5.33% effective federal funds rate — a volume-weighted median of overnight federal funds transactions.
Fund group Adapt3r Digital, which Archblock partnered with last year, ensures every transaction and fund allocation is recorded on the Ethereum blockchain.
The portfolio comprises short-dated US Treasury securities with a weighted-average maturity range of three to six months, a USDC reserve capped at roughly 5% and cash, according to Adapt3r Digital Chief Investment Officer Marcus Leanos.
“Given the anticipation of sustained elevated levels of the federal funds rate, short-term Treasury bills remain an attractive avenue for Web3 investors who are seeking exposure to this asset class,” Leanos told Blockworks.
Archblock is built on the financial infrastructure by DeFi credit protocol TrueFi, which has facilitated roughly $1.8 billion in originated loans on-chain since its inception in November 2020. Asset managers, such as Adapt3r Digital, build their portfolios on Archblock’s smart contracts, which automate fund operations like disbursements, redemptions and reporting.
The fund aims to process all redemption requests within one trading day. It has a management fee of 0.3% and a protocol fee 0.2%.
On-chain assets are safeguarded by multi-signature requirements, as multiple private keys are needed for transaction authorization.
An institutional custodian and a FINRA-regulated broker-dealer — both of which a spokesperson for Archblock declined to name — hold the off-chain assets in custody.
Competing offerings amid tokenization push
Among the fund’s biggest competitors are other DeFi yield opportunities, such as algorithmic yield on protocols Compound and Aave, according to Leanos.
“As compared to the risk-adjusted returns US Treasury bills offer, algorithmic investment opportunities are typically more risky because the respective protocols lend funds to collateralized borrowers,” he said.
More direct competition is Ondo Finance’s tokenized US Treasurys and bond offerings launched in January. The firm’s US Government Bond Fund (OUSG), for example, was set to initially invest exclusively in short-term US Treasurys via the Blackrock’s US Treasuries ETF (SHV). Ondo Finance charges fees for the product that total 0.45%.
Ondo Finance said in a blog at the time that its goal was “making traditional capital markets more accessible to investors who collectively hold more than $100 billion of non-yield-bearing stablecoins.”
Other competing products, albeit more indirect, include off-chain traditional ETFs and mutual funds that invest in Treasurys, such as SHV.
“The off-chain competition requires access to US bank and brokerage accounts and does not operate on a 24/7 basis like the on-chain opportunities,” Leanos noted.
Tokenization has become more of a mainstream topic in recent years as traditional players tout its benefits.
BlackRock CEO Larry Fink said in a letter to investors in March that the tokenization of assets could help in “driving efficiencies in capital markets, shortening value chains, and improving cost and access for investors.”
Firms like WisdomTree and Franklin Templeton have also expressed interest in pushing deeper into the tokenization space, and acted.
WisdomTree — a firm with $97.5 billion in assets under management — gained regulatory approval for its Short-Term Treasury Digital Fund (WTSY) last year. The fund digitizes its fund share ownership record on the Ethereum or Stellar blockchains.
The WisdomTree fund is one of nine digital funds available on its “blockchain-enabled” consumer app that went live last month.
$1.45 trillion asset manager Franklin Templeton launched its OnChain U.S. Government Money Fund in 2021.
Read more: A stablecoin with yield? Tokenized fund perhaps just the start for fund giant
One share of the fund, which seeks to maintain a $1 share price, is represented by one BENJI token. Holders of the token can access the fund in digital wallets through the Benji Investments app.
“If a money fund continues to offer attractive yield, we would expect investors to continue to find it as, at a minimum, a complementary product as they use currency stablecoins, which do not offer income,” Roger Bayston, head of digital assets at Franklin Templeton, told Blockworks in June.
Updated Aug. 15, 2023 at 10:35 am ET: Added information about the fund’s fees.
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Source: https://blockworks.co/news/on-chain-investors-us-treasury