AAVE founder Stani Kulechov is now emphasizing his new role as the founder of Web3 social protocol Lens Protocol. Similarly, Robert Leshner, founder of DeFi lending protocol Compound, seems to be starting a new entrepreneurial journey, targeting the current hot narrative of tokenizing real-world assets (RWA). On June 29, Robert Leshner announced the birth of his new company, Superstate, on Twitter.
“Today, I’m thrilled to announce the formation of a new company, Superstate, which aims to create regulated financial products that connect traditional markets with blockchain ecosystems. The main limiting factor of DeFi is that native crypto assets are the only interoperable assets. But eventually, trillions of “off-chain” assets will come to the blockchain, and we plan to facilitate this migration. On Monday, we filed a preliminary prospectus for Superstate Short-Term Government Bond Fund with the U.S. Securities and Exchange Commission, which is the first step in upgrading the financial market.”
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According to a filing submitted to the U.S. Securities and Exchange Commission (SEC) on June 26, Superstate will use Ethereum as a secondary record-keeping tool and create a short-term government bond fund, investing in “ultra-short-term government securities,” including U.S. government bonds, 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. In summary, “they are committed to purchasing short-term U.S. government bonds and putting them on the chain, using Ethereum and other blockchain technologies as secondary records to track the ownership of the fund’s shares and trade them directly on the chain.”
If Superstate’s product is approved, then cryptocurrency billionaires and native blockchain 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 U.S. Treasury bond yield is significantly higher than DeFi yield.
Superstate said 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 cryptocurrencies.”
Starting from the tokenization of U.S. Treasury bonds, once this scenario is realized and widely used, it will pave the way for tracking real-world assets on the blockchain in the future, but this road is full of layers of regulation.
Founder Leshner also said that everyone who holds the asset must be on the whitelist, and Superstate will not whitelist smart contracts such as Uniswap or Compound, so such DeFi applications cannot use it.
Can Superstate’s on-chain Treasury product be approved by the SEC?
Currently, the probability is quite high, as two similar products have already been approved by U.S. 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 process transactions and record ownership on the blockchain.
WTSIX launched by WisdomTree: A short-term Treasury digital fund launched in 2022, which invests in short-term U.S. Treasury bonds and records them twice on the blockchain.
WisdomTree President Jarrett previously said: “We expect that all financial assets will eventually move to blockchain infrastructure. This is an important step towards this direction, as we bring mainstream investments such as fixed income, stocks, and commodities into the digital world through blockchain-supported funds and tokenized assets.”
WTSIX was officially issued on January 18, 2023, with a fee of 0.41% and a minimum investment of $25, but the total net value is currently only $993,600.
By comparison, Superstate’s advantage is that the founder has enough resources from wealthy people in the crypto world.
In 2021, Compound Labs launched Compound Treasury, which allows fintech and other institutional customers to convert dollars to USDC and deploy these USDC tokens on Compound at a guaranteed interest rate of 4% in partnership with Fireblocks and Circle, far exceeding the yield on U.S. Treasuries at the time.
In 2022, SCB 10X, the venture capital arm of Siam Commercial Bank of Thailand, 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 yields are high risk and low return.
So the question is, what will be Superstate’s narrative if the US significantly lowers interest rates and bond yields drop sharply while DeFi yields rise sharply?
Once upon a time, Compound Treasury helped traditional off-chain institutions arbitrage and make money in the crypto world; today, Superstate helps new crypto elites profit in the fiat world. Different paths, same goal.
From Compound Treasury to Superstate, Robert Leshner’s original intention remains the same: to help the wealthy make more money.