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Arca Digital Asset Investment Firm Gets Approval from SEC to Tokenize US Treasury Bonds

Nicholas Otieno   Jul 08, 2020 02:20 3 Min Read


   

Digital Asset investment company Arca has been given the green light from the US Securities and Exchange Commission (SEC) for a new digital investment product, which combines treasury securities with blockchain management.

Opening Illiquid Assets to Investors

Announced on Monday, June 6, the Los Angeles-based digital asset investment firm launched its new product called Arca US Treasury Fund that offers its shares as digital securities. The digital securities, known as ArCoin, are already open to investors and are traded on top of Ethereum blockchain.  

The fund invests 80 percent of its portfolio assets in short-duration, interest-bearing, US treasury bonds, and notes, with investors/clients being paid quarterly interest. That is where similarities between traditional investment funds and treasury bonds come to an end as shares in the fund are offered as digital assets.

Customers can invest in the ArCoin. These digital securities are traded in a similar way to cryptocurrencies. ArCoin digital securities are built on the Ethereum blockchain and are fully ERC-1404 tokens, which provide customers with digital access to transparency and sophisticated protection. ArCoin is traded on financial institutions, but not on cryptocurrency exchanges.

ArCoin is designed to enable financial institutions to trade and manage blockchain-based equities and other similar products, with support of clearing and settlement, payment, lending, and trading.

The firm stated that ArCoin has several use cases. For example, digital asset enterprises and financial institutions could use ArCoin for lending, clearing and settlement, and treasury management and payments, while individuals can use ArCoin as an alternative to volatility in other digital assets.

It has been a long road to get to this point for Arca. The company submitted nine applications over two years before eventually getting approval from the SEC. The funds are registered under the Investment Company Act of 1940, which requires that investment firms and funds to register with the SEC and provide sufficient disclosures to investors (customers). This registration benefits investors as the act provides bankruptcy protections for them. Therefore, if something goes wrong with funds, then investors can have their investment returned. 

Rayne Steinberg, the CEO of Arca, described the announcement as a transformative and groundbreaking step towards the integration of digital asset investing and traditional finance as it is a new form of regulated digital investment products that are made available to investors.

Having been approved by the SEC potentially opens doors for Arca to develop innovative and new blockchain-based financial products. Several companies are facing difficulties in obtaining approval because of the hurdles that the SEC puts in the path of registration. But Arca has demonstrated how to do it.

Blockchain Powers Tokenized Bond Issuance and Trading

Blockchain is not just for digital coins. In 2018, the World Bank used blockchain to issue its tokenized bonds.

Bond issuance is a long process, which involves multiple intermediaries, incurring both the risk of human errors and high costs. These are common pain points in the financial securities sector, which technological innovations are seeking to solve. Blockchain is a new technology solution that has significantly become useful in lowering various costs associated with bond issuance. The idea of using blockchain is beneficial to the bond market as a whole by improving operational efficiency, reducing counterparty risk, and enhancing data visibility.

Over recent years, the idea of bond tokenization has increased in popularity, and several reputable institutions have unveiled their own tokenized bond initiatives. Tokenized bonds aim to reduce administrative costs and processes by using blockchain for digital management, trading, and issuance of bonds.  

 


Image source: Shutterstock


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