Blockchain startup files with SEC for treasury bond-backed stablecoin

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A Los Angeles-based blockchain startup has filed an application for U.S. Securities and Exchange Commission (SEC) approval of a new stablecoin, backed by U.S. Treasury bonds.

Digital asset manager Arca filed a prospectus with the regulator this week, which covers a fund with tokenized shares, to be made available to investors through a public listing if the SEC agrees to grant approval.

While the fund will be open to the general public, there are no plans to trade on any exchange or alternative trading system. However, shares in the prospective fund would be available to purchase as tokens, known as Arca UST, if the project gets the green light from the regulator.

The project has been branded by Arca as a stablecoin, though that comes with a caveat that the stablecoin might be somewhat less stable than other stablecoins. As it stands, the tokens would be expected to hold parity to the U.S. dollar, as with other stablecoins, subject to market fluctuations.

The target net asset value per share is $1, with a minimum investment of $1,000, according to the prospectus. The fund will invest as much as 80% in U.S.-backed securities, with the remainder spread across both public and private instruments from elsewhere in the world.

According to the prospectus, this focus on stable investments, and the notional tie to USD, means there is the expectation of limited volatility in the market for the new tokens.

It noted, “It is therefore anticipated that the underlying portfolio, and the NAV of Arca UST Coins, will have relatively little volatility…Accordingly, although holders of Arca UST Coins could experience greater NAV volatility compared to typical stablecoins, such volatility will be relatively limited.”

The fund does pay interest in the form of quarterly dividends, but the expectation is that it will be managed to ensure consistency of value, rather than for generating returns.

In order to trade in the new token, investors “must first establish a wallet address through the Arca application and ensure that it is whitelisted with the Transfer Agent.”

“Once an investor’s wallet address is whitelisted, the investor can use the Arca application to transfer money from a linked bank account to the Fund in return for shares of the Fund,” according to the prospectus.

The SEC will now review the prospectus in due course, to determine whether or not it can proceed with the approval of the regulator.