Arca Labs and Securitize Partner on Tokenized US Treasury Fund

Arca’s innovation division Arca Labs has partnered with Securitize to bring the first registered, ‘40 Act, tokenized United States Treasury fund to market, the companies announced Thursday. 

The Arca US Treasury Fund is structured the same as a mutual fund and meets the same regulatory requirements, but shareholders interact with it through an Ethereum token and share ownership is represented on the blockchain.

Shares will be issued through ArCoin digital asset security tokens, and records of token ownership and history will be maintained off-chain. Securitize will be the fund’s transfer agent and responsible for providing the smart contract and issuance platform behind the fund. 

“We really wanted to create a product that had utility,” said Rayne Steinberg, CEO of Arca. “This serves as something similar to a stable instrument, we say it’s a low-volatility coin.” 

Arca and Securitize, Steinberg said, are prioritizing investors, who have expressed interest in exposure to new blockchain-based investment vehicles, which institutions have largely not been able to deliver.

“We go through FINRA with all of our marketing, like any mutual fund company, and this is a registered investment company so we have to abide by those rules,” Steinberg said. “We can’t make claims about stability and things like that, so it’s a low-volatility product, backed by US Treasuries, and when we launched it, you know, the interest rate environment was slightly different.” 

Today, 2-year US Treasuries are yielding about 0.24%. The idea behind the fund, Steinberg said, was to provide people that were interested in the blockchain ecosystem with a product that met the highest regulatory standards. 

“To get rid of some of the regulatory overhang or confusion around other products that weren’t out under a federal regulatory body, that was the idea,” he said. “First, this one, which is short-duration US treasuries, but then a structure that could potentially hold many many different types of underlying products.”

Steinberg, who also co-founded exchange-traded fund provider WisdomTree, said that he isn’t sure if Arca would consider launching a cryptocurrency ETF should the structure ever get approved. ETFs, he said, were a step-function of utility for investors over 4pm-close mutual funds. They provide intraday liquidity and tax advantages that were not anticipated when the structure was created in the early 1990s.

“There would have to be a very good reason for us to see that utility to file an ETF,” Steinberg said. “It’s very crowded. There’s like 20 or 30 applications right now, and I think that ETF providers are, well, when you have a hammer, everything looks like a nail.” 

The team filed the fund with the US Securities and Exchange Commission in November 2018, but did not receive exemptive relief until mid-2020, Steinberg said, explaining that the regulatory process when it comes to crypto products can be lengthy. 

“This is a kind of technology that causes a lot of confusion and stress on the current system,” Steinberg said. “It’s very unusual for there to be broad access of the populace to securities or things that have securities-like attributes, so, the very nature of blockchain, what it’s doing, causes some confusion, and this is to be expected.”

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