Revolutionizing the Digital Assets Ecosystem: How Arca Pioneered the Use of U.S. Treasuries for ArCoin
The selection of US Treasuries as the underlying asset of the first Blockchain Traded Fund incredibly deliberate. Arca first began thinking about creating the Arca US Treasury Fund and it’s digital security, ArCoin, back in 2018 and set out to accomplish three important goals.
- Registered under the 1940 Investment Act
- Low Volatility
- Yield Bearing
Our thesis was that the ecosystem and infrastructure was too premature for traditional financial institutions to adopt digital assets and that a familiar structure, regulator and rules would be necessary to attract them. Additionally, we believed that demand for stable tokens would increase as would the industry's appetite for interest. As a follow-up to our article on Blockchain Transferred Funds, below we share an overview of the Arca US Treasury Fund and use cases for ArCoin.
The Arca US Treasury Fund is a registered ‘40 Act Fund that invests in a portfolio of US Treasuries. What makes our fund novel is that it is the first Fund where investors receive digital shares in the form of a token, called ArCoin. By replacing traditional paper shares with digital shares issued on the blockchain, these shares (or Arcoin), can be transferred peer-to-peer or from wallet-to-wallet. This innovation allows for ArCoin to have expanded utility beyond simply functioning as an investment vehicle. Given ArCoin’s underlying asset, short-duration US Treasuries which are historically interest-bearing and low-volatility instruments, ArCoin may be used for payments at exchanges, clearing and settlement, lending, insurance and treasury management.
As such, we’ve melded blockchain technology, the ‘40 Act fund structure, and US Treasuries to create a product with greater safety, stability, and utility than similar products currently seen in the digital assets market.
Providing a Gateway to Adoption for Traditional Finance
US Treasuries are one of the most liquid financial instruments of the investable universe, with just under 27 trillion outstanding as of September 20th, 2020. This debt instrument is purchased by a plurality of entities, such as:
- US government pension funds
- commercial banks
- foreign governments
- insurance companies; and
- cash-heavy corporations.
The prevalence of U.S. Treasuries is grounded in their yield, stability, and familiarity. The guarantees behind these securities are regarded as one of the key cornerstones of both the domestic and international economy and therefore are attractive to both individual and institutional investors alike.
By choosing a commonly-used, yield-generating asset with minimal volatility that is investable through the ‘40 Act, we provide a gateway for traditional players to subscribe to the Arca US Treasury Fund and use ArCoin.
Arcoin’s Augmentation of U.S. Treasuries Offers Distinct Benefits
ArCoin marries traditional finance with digital assets, and participants from each side enjoy distinct benefits when using ArCoin.
Traditional Finance: Reducing Volatility, Providing Peace of Mind
ArCoin allows a familiar and safe way for investors outside the digital assets ecosystem to enter the space and understand the specific mechanics of digital assets investing (opening a digital wallet, transferring peer-to-peer, etc). Investing in a portfolio of US Treasuries greatly reduces the volatility seen in other digital assets. The benefits associated with ‘40-Act products means there is no chance for an investor to have their money disappear, thus providing ArCoin holders peace-of-mind when investing in this digital asset.
Digital Assets: Reducing Costs, Maximizing Efficiencies, and Better Protections
For the digital assets ecosystem, ArCoin offers an alternative to stablecoins by offering a low volatility tool plus an independent trust and board of directors that no other stablecoin can offer at this time. Therefore, ArCoin provides a better solution for firms that need a stable digital asset whether for treasury reserves or business purposes. Additionally, for firms that invest in US Treasuries, ArCoin provides a more efficient experience reducing costs, offering 24x7x365 transfers, and streamlining operations.
Use Cases for ArCoin: Cutting Costs and Saving Time
With the addition of blockchain technology, US Treasuries become both a store of value and a medium of exchange. This becomes helpful with institutional settlements. Currently, settlements between large institutions are expensive, tedious and time-consuming. Additionally, intermediaries such as clearing firms are used to facilitate settlements using cash as a medium. However, these institutions can now use ArCoin as the medium for settlement thereby:
- Eliminating the need for clearing houses thereby cutting costs
- Reducing settlement times from days to minutes
A similar scenario plays out for companies offering insurance. Instead of switching in and out of cash positions, ArCoin can facilitate flows of funds between an insurance company and its clientele.
The opportunities for ArCoin to increase productivity and eliminate inefficiencies are tremendous, resulting from its binary nature as a real-world asset, U.S. Treasuries, and a product of the blockchain.
Leading with Investors and Institutions in Mind
When faced with the task of creating a bridge between real-world assets and the blockchain, Arca chose U.S. Treasuries to build the right sentiment and faith in the potential of blockchain transferred funds. With many exciting partnerships on the the horizon, the Arca Labs team is steadfast in its commitment to pioneering this asset class for the industry.
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