Compound founder enters RWA track and tokenizes US Treasury bonds on Ethereum

Author: 0xmin, Shenzhen TechFlow

Stani Kulechov, the founder of AAVE, now emphasizes his new identity as the founder of the Web3 social protocol Lens Protocol.

Robert Leshner, the founder of Compound, another leading DeFi lending protocol, seems to be starting a new entrepreneurial journey. He has set his sights on the current hot topic of tokenization of real-world assets (RWA).

On June 29th, Robert Leshner announced the birth of his new company Superstate on Twitter.

“Today, I’m excited to announce the formation of a new company, Superstate, with a mission to create regulated financial products that connect traditional markets and blockchain ecosystems.

The main limiting factor for DeFi is that crypto-native assets are the only interoperable assets. But ultimately, trillions of dollars of “off-chain” assets will migrate to the blockchain, and we plan to facilitate this migration.

On Monday, we submitted the preliminary prospectus for the Superstate short-term government bond fund to the U.S. Securities and Exchange Commission, which is the first step in a long journey to upgrade the financial market.”

According to a filing submitted to the U.S. Securities and Exchange Commission (SEC) on June 26th, Superstate will use Ethereum as an auxiliary record-keeping tool and create a short-term government bond fund that invests in “ultra-short-term government securities,” including U.S. Treasuries, government agency securities, and more. In addition, the filing also emphasizes that “the Fund will not directly or indirectly invest in any assets that rely on blockchain technology, such as cryptocurrencies.”

Currently, Superstate has completed a $4 million seed round of financing, with investors including BlockingraFi Capital, 1kx, Cumberland Ventures, and Distributed Global.

Simply put, they are committed to buying short-term U.S. Treasury bonds and putting them on the chain, using blockchain technology such as Ethereum as a secondary record, tracking the ownership shares of the fund, and allowing direct on-chain trading circulation.

If Superstate’s product is approved, cryptocurrency tycoons and blockchain-native funds will be able to obtain high returns on U.S. government bonds without changing their investment portfolio management methods. After all, the current risk-free return on U.S. Treasuries is significantly higher than the return on DeFi.

Superstate wrote in a statement to the media, “Our vision is to create an SEC-registered investment product that will compete with stablecoins over time as a reserve asset and settlement choice for cryptocurrency.”

Starting with the tokenization of US Treasuries, once this scenario becomes a reality and is widely used, it will pave the way for tracking real-world assets on the blockchain in the future, but this path is full of layers of regulation.

Founder Leshner also stated that every person holding the asset must be whitelisted, and Superstate will not whitelist smart contracts such as Uniswap or Compound, so such DeFi applications cannot use it.

Can Superstate’s on-chain national debt product be approved by the SEC?

At present, the probability is quite high, and two similar products have been approved by US regulators.

“FOBXX” launched by Franklin Templeton: The fund was first launched in 2021 and became the first registered mutual fund in the United States to use blockchain for transaction processing and ownership recording.

“WTSIX” launched by WisdomTree: a short-term national debt digital fund launched in 2022, investing in short-term US Treasury bonds and recording them twice on the blockchain.

WisdomTree President Jarrett previously said: “We expect all financial assets to eventually move to the blockchain infrastructure. This is an important step in this direction, as our blockchain-supported funds and tokenized assets bring mainstream investments such as fixed income, stocks, and commodities into the digital world.”

WTSIX was officially launched on January 18, 2023, with a fee of 0.41%, a minimum investment of $25, but the total net value is currently only $993,600.

Superstate’s advantage, on the other hand, is that “the founder has enough rich resources in the crypto world.”

In 2021, Compound Labs launched Compound Treasury, which allows fintech companies and other institutional clients to convert dollars into USDC and deploy these USDC tokens on Compound with a guaranteed interest rate of 4% in cooperation with Fireblocks and Circle. At that time, the 4% interest rate far exceeded the yield of US Treasuries.

In 2022, the risk investment department SCB 10X of Thailand’s Siam Commercial Bank announced that it had deposited funds into Compound Treasury. However, in the first quarter of 2023, Compound Treasury announced its closure. After all, at this moment, DeFi has high income risk and low income.

So here’s the question: if the US drastically cuts interest rates in the future and bond yields drop significantly while DeFi yields skyrocket, what will Superstate’s narrative be?

Once upon a time, Compound Treasury helped off-chain traditional institutions arbitrage and make money in the crypto world; today, Superstate helps crypto newcomers make money in the fiat world, with different paths but the same goal.

From Compound Treasury to Superstate, Robert Leshner’s original intention remains the same: help the wealthy make more money.

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