RWAs Assemble: T-bills Chapter with Matrixport, Ondo Finance, OpenEden

For our guests, we had Jeremy from Open Eden and Benjamin from Matrixport.

Shreya: It’s been a crazy week.

PG: The market is crazy and it’s moving like it has no direction. Someone said it’s a CZ chart. Benjamin do you have any news on that?

Benjamin: The situation with Binance had some finality to it with the settlement. It avoided the worst case scenario which is a complete shutdown of the exchange.

PG: Yes, but we’ve seen situations even in traditional businesses where the CEO can run things from the background. I think that’s what CZ will do. I feel like it’s a positive news. Milind you wanna take over?

Milind: I think it’s a positive news. This is our 3rd chapter of RWAs Assemble, we’ll be talking about T-bills. Welcome Benjamin and Jeremy. Kindly introduce yourselves.

Jeremy: GM, GM. Thanks for having me here. I’m Jeremy, one of the 2 Co-founders of Open Eden. We built the first smart contract bot that allows our investors to have 24/7 access to tokenized T-bills. We have launched and I’m happy to share more later in the space.

Benjamin: Delighted to be here. I’m leading the business development and DeFi Relationships at Matrixport.

Milind: Why do we want to bring T-bills on-chain? What’s the edge of on-chain over off-chain?

Jeremy: Not every investor has access to US T-bills because of the challenges of opening a bank account let alone, opening a brokerage account to access T-bills. But by tokenizing T-bills and bringing them on-chain, access is granted. Another benefit is that tokenized T-bills can be traded 24/7 in contrast to TradFi T-bills where they can only be traded Monday – Friday during US open hours.

Benjamin: Yeah, I want to add to Jeremy’s points. There are 100billion stable coins backed by US government securities, and tokenized T-bills carry the same economic risk with stable coins, however stable coins won’t generate revenue for investors, but tokenized T-bills will.

Milind: How do we get more users to use these products?

PG: There aren’t many people who know about tokenized T-bills. Our RWA Marketplace has crossed 10,000 registrations and the individuals who signed up may be accessing T-bills for the first time through our RWA Marketplace. So I think one way to onboard people into tokenized T-bills is to serve them the assets on a central platform.

Another thing is, most tokenized T-bills protocols work in silos and as a result, they are hidden from the larger DeFi community and other chains. An investor who knows about T-bills might want to spread his risk by investing in multiple protocols offering tokenized T-bills, but he will only have that access if he can discover those multiple protocols on a central platform, this is one of the issues our RWA Marketplace wants to solve.

Milind: Jeremy, where have you seen the biggest demand coming from?

Jeremy: Actually, the demand is spread out amongst foundations, DAOS, large crypto funds (liquid & illiquid), even stable coin issuers and structure product issuers. When we first launched the product, we thought the bulk of the demand will come from web3 corporate treasuries because they face challenges in getting a traditional back account.

Milind: Benjamin, have you seen a similar trend in users?

Benjamin: Yes.

Milind: What are the criteria for eligibility and what are redemption flows like?

Benjamin:  The $STPT token is erc-1400 which allows for 2 additional features on top of erc-20, rebasing (always has a value of $1), and redistribution of interest through rebasing. For eligibility, we use whitelisting and KYC to show that you are an accredited investor and not from an area that is blacklisted because our token $STPT derived its yield from US govt. securities.

Milind: What is the minimum ticket and what is the redemption of $STPT like?

Benjamin: So the there is a mint redemption contract which is used to put new $STPT into circulation and out of circulation from stable coins. And then there’s secondary market liquidity which is the curve pool as well as OTC and different trading venues where the token is liquid and so obviously on the secondary market, the curve pool, there is no restrictions. You only have the economic hurdles of making it viable because of the Ethereum main net gas fees. So realistically you wouldn’t be transacting in an amount that is smaller than $1000 for example. And on the primary mint side the smallest clip that we can support is $100,000 that simply because that’s the smallest skip that U.S. Treasury is traded.

Jeremy: Happy to share about our process as well. So we we build our token based on the EIP-4626 standard. So it is an ERC-20 token on the Ethereum mainnet as well. Our subscription process is quite straightforward. Once the investor is whitelisted and onboarded, to qualify, it has to be accredited professional investors, both in the US and outside of the US.  So our token issuer is a registered professional fund regulated by the BVI IFSC with the underlying access being managed by a Singapore MES Regulator Fund Manager and because of that, we were able to file a form D notice with the SEC to offer into US to accredited investors. So we don’t really have a geographic restriction apart from clearly sanctioned jurisdictions to be on boarded and once they are onboarded, the users wallet addresses will be whitelisted and they can go into our debt and just deposit USDC and mint these tokens live. So you will be instantly set up based on the live price that are on chain price. Oracle will calculate the net asset value of the underlying portfolio.

For redemption, similarly an investor will submit a request to to lock up their T-bill tokens and a redemption will be will be processed within within the same day, within hours most of them. So even sometimes on Saturday and Sunday when market hours not trading, there can still be primary issuance and redemption.

Milind: And that works through a float that you guys have. How do you settle on the weekend?

Jeremy: Yeah. So on a weekend it will be based on a set amount of float that we have as reserve. But on a normal market trading day it can be settled on the same day as well. The way we do that is we are able to unwind the underlying bonds and bring on the cash to to a same day wire transfer. So we’ve done it many times and it’s actually quite efficient. The worst case is maybe one business day, but most of the time you know we can we get have it sent on the same day.

Milind: How long does it take for users to redeem from the protocol?

Benjamin: We have a quota for quick redemption called the T+1 settlement. Outside of that quota it’s banking transfers and which can be up to T+1 free depending on what time of the day and the transfer speed of the interbank transfers. Because what we are doing in the background is we’re off ramping on ramping stable coins as well as transferring from the SPV setup, the bankruptcy remote setup to the brokerage account, and even the the rolling of the reverse repo takes at least one day for settlement.

Milind: Piyush what has been Polytrade’s take on T-bills, what do we want to do with them?

We believe that this market will expand and provide more opportunities for investors to participate. It comes down to how swiftly a user can participate if he wants to get an instant liquidity, would he be able to trade his position and sell his position to somebody else?

One thing we desperately want to do and try on our platform is that facility. Everything that can be tradable on our platform would be wrapped in ERC-6960, the token standard we authored. So lets lets take an example, if it’s an OpenEden position, some user who is already holding an open position and wants an exit but he doesn’t want to go through the redemption process.

He could simply come on our platform, list that position for sale let’s say lets some discount because he needs instant cash and when he does that listing, it will be wrapped in 6960 and that 6960 and then becomes tradable primarily, but from OpenEden perspective nothing has changed because their position and liquidity stays the same. Nobody has really gone down and liquidated the position.

Only that position has changed hands and and it could happen like 1,000,000 times before somebody decides to actually go and liquidate it on Open Eden and that’s where you know we get out of the equation, we burn 6960 and allow the user to directly go and interact with Open Eden to do his KYC, compliances, whatever are required by OpenEden to entertain him. So that is the reason we believe that its more inclusive in nature – that people can actually trade their assets around here.

And then once there is a maturity or once there is a dire need of really getting out and a person is comfortable going to the protocol and redeem it, that’s where he finally goes and bother the protocol as such. So I hope I’ve been able to answer like what your point was.

Milind: Yeah, absolutely.

Jeremy: That would be great, creating secondary liquidity is also good for issuers like ourselves so that there’ll be less redemption to process and also obviously keeping our TVL high so kindly looking for to that.

PG: Yeah and I don’t know Jeremy, Benjamin maybe you can you can entertain me on this. But in the interest rate trading scenarios, we see a lot of Web 2 traders who trade interest rate swaps, right. Could these T-bill products eventually open that Pandora box for people to just, purely for the sake of trading do trading here on interest rates and all these kind of scenarios?

Benjamin: Absolutely. So I think once our markets have a certain level of of depth and liquidity, there’s definitely going to be TradFi players trying to use these instruments to express their views over closed market hours and I think that is one of the more exciting angles of growth here.

PG: Yeah. And 24/7 instant settlements, so many benefits which were not there in TradFi, so why not.

Benjamin:  I think there’s a different type of investors needed to trade interest rate derivatives. Jeremy what do you think?

Jeremy: Yeah, I think some of their participation would probably start up with the web3 crypto funds with fund managers that came from TradFi space that are used to trading rates. Obviously now they are trading crypto but they want to connect at a certain point to add on to the alpha maybe creating certain market mutual long shot trace and now they don’t have to be stuck within just trading of digital asset where if you look at the options market is still limited to a few large coins right you know in terms of high liquidity.

Benjamin:  Yeah. I think probably the easier way of adoption is that that you will have a small portion of your overall treasury exposure on chain for you to be able to react over close market hours to major tube political events. And obviously then you will be able to go from a risk off asset to a risk on asset. That’s generally a trade that will be playing out and we seen some of that already I think.

Milind: So how how do T-bils take over those 10s of billions that are available in stable coins? What do we need to do or what do you guys need to do to take T-bills to that level?

Benjamin: So we’ve actually launched a stable coin built on top of $STBT last week, it’s called a USDV and it’s stablecoin backed 1:1 by the treasury token which is obviously backed by U.S. government securities.

So you have a token that is having the same if not better yield than most existing major fiat-backed stable coins. And the novel part about this stable coin is that the yield is shared with ecosystem partners. Now this is one one use case of how you can build a stable coin on top of an RWA. There is a different breed of of stable coins. They are sometimes referred to as flat coins that try to keep up with with inflation or other metrics that are not directly representing $1 and these are then typically backed by mix of assets where U.S. government securities usually form a big chunk of it.

Milind: When are we going to see these stablecoins take over the classical USDT and USDC that are not interest bearing stablecoins?

Jeremy: In order for these T-bill tokens to gain a bigger role, not even replacing traditional stable coins, they have to have the ability to be used as eligible collateral and in order for that to happen, the secondary liquidity needs to be deep and strong. The most important is for it to be able to be conveyed via permissionless transfer between users and that remains a challenge because in most jurisdictions T-bills are considered a security and as long as it is, it will be difficult for transferability legally.

Milind: What should be the main feature that a user should look for when searching for a T-bill protocol to use?

Jeremy: As an investor, what they should be looking out for is risk. what we’re trying to do as an issuer is to provide AAA security and bring it on-chain. They need to look under the hood and see how the engines of the protocols work.

Milind: What are you guys most excited about next?

PG: Onboarding to these protocols has been always difficult for me even after passing the requirements – net worth, eligibility and others. I think that if we want to give retail access to these protocols, the entry barriers should be lowered. What do you think?

Benjamin: Yeah, not I think obviously that’s an ideal scenario. I think given how the ultimate underlying assets are U.S. government securities and the issuers of these tokens will have to make sure that they are compliant with the existing regulatory regimes to not lose access to these products and so therefore they have to comply with with certain distribution restrictions. They have to comply with with certain distribution restrictions and that’s where I was just talking about regulatory gymnastics which we all have found different ways of making this product work and then there are multiple other players that are doing this but the more further out you go on the creativity, the more you get into a scenario like when Jeremy saying that you potentially adding up risks that are not making it a worth-while investment because what you really want is that risk free U.S. government exposure not any counterparty risk or or smart contract risk on top.

Jeremy: I think we are slowly getting there. The regulators are slowly adopting and bracing, so for example in Hong Kong, the Hong Kong SFC has recently been very encouraging in allowing security tokens to be offered to retail, so under that regime issuers can essentially launch a product and have it registered in Hong-Kong and tokenizing it and offering you to retail and so by that means that the threshold can be reduced quite substantially so I think we are slowly moving the right direction, may be some jurisdictions are moving a little bit further than in the West for example, but I think we’ll get there.

Benjamin: That’s great because obviously there is jurisdictional competition on this as well. These are in essence, borderless products. There is one one Ethereum chain and so the fact that that some regulators are moving obviously are well noticed in major other jurisdictions too.

PG: Correct. Most of the regulators are copycats, to be honest. They do not want to take the first step. But when when some major regulator does that, the other ones just follow.

Jeremy: I was in a closed door meeting with a regulator and they admitted to that.

PG: Yes. I was in Singapore Fintech Festival and the conversation about tokenization was led by a regulator, so I think we are moving in the right direction.

Question from AUDIENCE.

END.

Listen to the full audio version here: https://twitter.com/i/spaces/1ypKdkaavvrxW

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