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 is incredibly deliberate. Arca first began thinking about creating the Arca US Treasury Fund and its digital security, ArCoin, back in 2018 and set out to accomplish three important goals.
1. Registered Under the 1940 Investment Act
2. Low Volatility
3. Yield Bearing
Our thesis was that the ecosystem and infrastructure were too premature for traditional financial institutions to adopt digital assets and that a familiar structure would be necessary to push digital assets out of their nascency. 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 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.
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
● 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 to invest the Fund’s assets in U.S. Treasuries, a commonly-used, yield-generating asset with minimal volatility, we provide a gateway for traditional players to subscribe to the Arca US Treasury Fund and use ArCoin. ArCoin marries traditional finance with digital assets, and participants from each side enjoy distinct benefits when using ArCoin.
Traditional Finance: Reducing Volatility
ArCoin allows a familiar and structured 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).
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 stablecoin providers currently do not offer. ArCoin provides a solution for firms that need a stable digital asset whether for treasury reserves or business purposes. Additionally, ArCoin provides an efficient low-cost experience, with 24/7 trading, and streamlined operations.
Use Cases for ArCoin: Cutting Costs and Saving Time
Currently, settlements between large institutions can be 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 and blockchain technology as the medium for settlement thereby:
1. Potentially eliminating the need for clearing houses, resulting in lower costs
2. Potentially 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. ArCoin increases productivity and eliminates inefficiencies as a result of its binary nature as a real-world asset 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 to use U.S. Treasuries to build the right sentiment and faith in the potential of blockchain transferred funds. With many exciting partnerships on the horizon, the Arca Labs team is steadfast in its commitment to pioneering this asset class for the industry.
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Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, legal advice, tax advice, a research report, or a recommendation. Any decision to invest or take any other action with respect to any investments discussed in this commentary may involve risks not discussed, and therefore, such decisions should not be based solely on the information contained in this document. Please consult your own financial/legal/tax professional.
Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed are those of the author, and are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Arca disclaims any obligation to update or revise any statements or views expressed herein. Past performance is not a guarantee of future results and there can be no assurance that any future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which is believed to be accurate, but has not been independently verified. Arca and/or certain of its affiliates and/or clients may now, or in the future, hold a financial interest in investments that are the same as or substantially similar to the investments discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Arca and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities, or a solicitation to provide investment advisory services.