How a yield-bearing settlement network reflects a tokenization trend
Amid industry talk about use cases for stablecoins and onchain RWAs, a settlement network for institutions is on the horizon
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Because the industry’s been talking a lot about the use cases for stablecoins and onchain RWAs, it’s worth highlighting a soon-to-launch settlement network for institutions.
Called Lynq, the network will be powered by the Arca Institutional US Treasury Fund (TFND). That has a portfolio of short-term, yield-bearing US Treasurys and issues its shares via the Avalanche Blockchain.
TFND requires AML/KYC on subscribers, and all client funds are held with US Bank.
Speaking of partners, Lynq is set to use tZERO’s special purpose broker-dealer license and Tassat’s real-time blockchain infrastructure. (Since launching in 2017, Tassat has settled more than $2.5 trillion for institutions).
B2C2, Galaxy and Wintermute will “ensure critical mass by onboarding their top clients early, expanding adoption and establishing initial liquidity,” Arca Labs president Jerald David told me.
Arca Labs has been consulting with prime brokers, market makers, exchanges and stablecoin issuers for more than a year, David added. The goal is for funds to flow to and from exchanges to fund accounts and trades. And for stablecoin issuers to create and redeem for their users on Lynq.
In Wintermute managing director Katryna Hanush’s words: Lynq “streamlines onboarding, subscription and redemption, offering counterparties a safer and more efficient way to transact through settlement rails that integrate regulatory clarity, real-time operations and yield.”
That last word — yield — is important.
Taking a step back, stablecoins (aka tokenized cash) have grown to be a roughly $230 billion market. Agora co-founder Nick van Eck said at last week’s TokenizeThis conference that he expects USD-denominated stablecoins to “nuke” most non-G20 country currencies over the next 20 years as more people adopt blockchain-based finance.
Van Eck projects that stablecoins could grow to a $2 trillion market cap in five years.
Meanwhile, tokenized money market funds are a smaller — but growing — segment, with BlackRock’s BUIDL fund recently passing $2 billion in AUM on its own.
Industry watchers expect this category to grow in tandem with stablecoins — with the former serving as a cash savings vehicle and the latter being an instrument for payments.
Stablecoin issuer Circle noted the demand to move between cash and yield when it acquired Hashnote in January.
Lynq uses Tassat’s “yield in transit” functionality, meaning institutions can receive interest based on intraday fund holdings, David explained. Fund interest is sent to Lynq users in five-second increments and distributed daily.
It remains to be seen whether Lynq can fulfill what it hopes to do. David labeled that goal, in 10 years, as aiming to “facilitate seamless interoperability between traditional and decentralized finance” via tokenized securities settlement, permissioned liquidity pools and who knows what else.
First it has to launch. Then we’ll see what sort of traction it gets and who else seeks to follow suit (and improve upon it).
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