Ethena Allocation Template for RWA/Reward-Accruing Assets

Applicant information

Name: Securitize Markets, LLC (as distributor of BlackRock USD Institutional Digital Liquidity Fund Ltd. (“BUIDL ” and on behalf of Blackrock Financial Management, Inc., as investment adviser for BUIDL)

Key Information

  1. Expected APY
  • The current fund yield will closely track the overnight repo rate minus the fund annual fee of 0.50%. As of 7/18/2024, the current yield after all fees is approximately ~4.88%. The yield will accrue to the holder of record every calendar day, as of 3:00 PM, and will be distributed monthly in-kind directly to the investor’s blockchain address on or about the 1st business day of the following month.
  1. Underlying asset(s)
  • The Fund will invest 100% of its total assets in cash, U.S. Treasury bills, notes or other obligations that mature in three months or less from the settlement of the purchase in both the primary and secondary markets. The Fund may invest in variable and floating rate instruments, and transact in securities on a when-issued, delayed delivery or forward commitment basis.

  • The Fund will only purchase securities that present minimal credit risk as determined by the investment adviser.

  • The Fund may also invest in one or more government money market funds (“Underlying BlackRock Funds”) managed by the investment adviser or an affiliate that invest in the same types of securities. For purposes of satisfying the Fund’s strategy of investing 100% of its total assets in cash and the other types of securities described above, investments in such underlying BlackRock Funds will be considered as if they are invested in cash and such securities.

  1. Minimum/Maximum transaction size
  • USD $5 million minimum first investment with $250,000 minimum follow-ons. The fund does not have a maximum transaction size.
  1. Current AUM for asset: Etherscan found here

  2. Volume metrics: Etherscan found here

Proposal Summary

Brief outline of the requested allocation of Ethena’s Reserve Fund to your asset/product and benefit to Ethena.

  • Securitize is committed to developing solutions in the digital assets space that help solve real problems, specifically by bringing digital asset securities to different markets for treasury management, portfolio diversification, and secured ecosystem utility.

  • Securitize is the leader in tokenizing real-world assets, driving the compliant digitization of financial assets through the blockchain. And now, in partnership with BlackRock, one of the world’s largest asset managers, we have BUIDL - the BlackRock USD Institutional Digital Liquidity Fund.

  • Since its launch in March 2024, BUIDL has become the fastest growing and largest fund of its kind, reaching over half a billion dollars in AUM in less than 4 months.

  • As the first fund to reach this milestone, BUIDL is paving the way in enabling players across the industry to more effectively diversify reserves and manage their treasuries. The utility of the token can be seen across funds, DAOs, stablecoins and other yield-bearing products, as these entities trust BUIDL to back part of their reserves.

  • BUIDL can enable Ethena’s reserve fund to invest in a treasury-backed product as a low-risk diversification play, while gaining the efficiencies of holding blockchain-based reserves in a product that earns stable yield, without ever leaving the blockchain ecosystem.

  • Securitize, as the distributor of BUIDL, proposes an allocation of $34M of the $45M of the reserves. $18M from USDT in Ethena’s treasury would instantly begin to earn yield on the balance if transferred to BUIDL. Additionally, if the $15M in DAI is not being used to yield farm or is returning highly variable yield due to staking that locks the asset, moving the balance to BUIDL would enable the Ethena to earn a stable yield, reduce protocol risk, and retain DeFi native interoperability via USDC subscription and redemption.

  • Supplementary Docs:

    1. Steakhouse Financial Report on BUIDL

    2. USDC Smart Contract Press Release

    3. Hidden Road Press Release

    4. FalconX BUIDL Press Release

    5. Dune Dashboard - BUIDL

    6. Data room - PPM, FAQs, pitch deck - available upon request

Basics and background

1. How will this allocation improve the diversification or capital efficiency of Ethena’s Reserve Fund and/or backing assets?

  • Securitize is the leader in tokenizing real-world assets, driving the compliant digitization of financial assets through the blockchain. And now, in partnership with BlackRock, one of the world’s largest asset managers, we have BUIDL - the BlackRock USD Institutional Digital Liquidity Fund.

  • Since its launch in March 2024, BUIDL has become the fastest growing and largest fund of its kind, reaching over half a billion dollars in AUM in less than 4 months.

  • BUIDL can enable Ethena’s reserve fund to invest in a treasury-backed product as a low-risk diversification play, while gaining the efficiencies of holding blockchain-based reserves in a product that earns stable yield, without ever leaving the blockchain ecosystem.

  • By trusting Blackrock, Ethena can reduce counterparty risk; Blackrock has a long history of successfully managing money for institutional clients, including corporate and public pension plans, and manages $10.5T in assets globally.

  • Additionally, Ethena will be able to experience efficiency in value movement, as BUIDL will allow for USDC subscriptions and redemptions to access liquidity on demand.

2. Please describe any experience your firm has in working with decentralized organizational structures.

  • Securitize is the leader in tokenizing real-world assets, driving the compliant digitization of financial assets through the blockchain. As a top 10 transfer agent, Securitize has worked with a considerable list of crypto-native firms, notably working through what KYC processes and requirements look like for DAOs. We have also proven out onboarding processes for DAOs, notably through our relationship with Arbitrum DAO as part of the STEP grant program.

  • This, and other DeFi-native relationships, has given Securitize insight into various strategies for onboarding decentralized organizational structures to be approved for investing in tokenized securities. While we cannot advise on legal structures for entities, we have seen others onboard via US corporations, non-US corporations, trusts, and other legal entity structures.

  • Securitize is also integrated with several additional networks, including Ethereum, Polygon, Avalanche, and XDC, to issue products on these chains.

3. What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?

  • The BVI entity for BUIDL has ~$519M as of 7/22/2024 (see current AUM on etherscan here).

  • As of 16 July 2024, BlackRock has been entrusted to manage $10.5 trillion across equity, fixed income, alternatives, multi-asset, and cash management strategies for institutional and retail clients. BlackRock collectively supports millions of people around the world by working alongside institutions and financial advisors as they contribute to the financial well-being of those who depend on them. BlackRock’s cash management AUM is ~$800B.

Legal design

1. Do holders of your product have any shareholder, investor, creditor or similar rights?

  • BUIDL will offer investors non-voting, participating Class A Shares, having no par value, issued in the form of digital tokens.

2. Describe the legal and contractual structuring for your product, specifically naming any regulatory bodies overseeing the product, if applicable.

Legal:

  • The Fund is a limited company incorporated under the laws of the British Virgin Islands on 18 September 2023, to operate as a professional fund. The Fund is a “professional fund” within the meaning of the Securities and Investment Business Act, 2010 (“SIBA”) and accordingly Shares in the Fund are only being offered to and will only be issued to “professional investors” within the meaning of SIBA.

  • The Articles are governed by the laws of the British Virgin Islands. The Subscription Documents relating to the Fund are governed by the laws of the state of Delaware. The Subscription Documents provide for disputes to be determined by the courts of the Supreme Court, State of New York, New York County and of the US District Court for the Southern District of New York.

  • US Regulatory: The Fund is not registered as an investment company and, therefore, is not required to adhere to certain investment policies under the Company Act in reliance on the exemption provided in Section 3(c)(7) of the Company Act with respect to offers made to U.S. persons. As part of the Fund’s responsibility for the prevention of money laundering, the Fund may require a detailed verification of a Shareholder’s identity, the identity of any beneficial owner underlying an investment in the Fund and the source of payment of such investment.

Contractual:

  • There are three primary legal documents associated with investing in BUIDL:
  1. The Master Subscription Agreement (“MSA”) (signature required)
  2. Fund Subscription Agreement (“FSA”) (signature required)
  3. Private Placement Memorandum (“PPM”) (for reference only)
  • Both the MSA and FSA require investor signature prior to investing; the PPM does not.

  • The MSA and FSA are binding agreements. They request information and representations from the investor to determine eligibility for investing in the Fund. They also outline the terms of the Fund that the investor must accept in order to invest. These documents need to be signed by legal signers or authorized representatives of the legal entity/Foundation/DAO (likely multiple individuals). Each legal signer must create a securitizeID account.

  • The PPM outlines detailed information about the Fund such as the investment objective, structure, legal considerations, risks, and other important information to consider before investing.

3. How would the proposed allocation be treated in a bankruptcy or insolvency situation?

  • Ethena’s assets would be bankruptcy remote from the fund’s entity and its officers / key contributors. The transfer agent issues securities at the direction of the issuer and does not own or custody the assets. Should Securitize enter bankruptcy, the role of transfer agent could be transitioned to another provider who could redeem shares with the fund. The fund could also decide to close and return funds to shareholders if a successor transfer agent could not be engaged.

  • Additionally, the custodial relationship of the Fund with BNY Mellon is covered under the U.S. Securities Investor Protection Act.

Smart Contract/Architecture

1. How many smart contract audits have been completed with respect to your tokenized product? Please name the auditors and provide a copy of reports.

  • Securitize’s smart contracts have had periodical technical audits conducted over time. In the past, this was done by CoinFabril; however, our latest audit was performed by Certik. The most recent report can be shared upon request. Securitize is also a SOC1 compliant organization.

  • The smart contract code for BUIDL has also been reviewed in detail by several partners as part of the launch, including one partner who has conducted an independent audit. Additionally, Halborn audited the USDC <> BUIDL swap smart contract.

2. Is the asset/product permissioned? If so, how are you managing user identities? Any blacklisting/whitelisting features?

  • The project is permissioned. Primary and Secondary trading are limited to whitelisted investors passing a KYC/AML onboarding process.

  • Each person seeking to invest in the shares must be, among other things, (i) an “accredited investor” and (ii) either (x) a “qualified purchaser” or a “knowledgeable employee,” in each case as defined under applicable U.S. federal securities laws or (y) a non-U.S. person that is outside of the United States at the time it acquires Shares.

  • Each prospective Shareholder will be required to agree that no shares, nor any interest therein, will be transferred (other than to a Whitelisted Account) without the prior written consent of the Board of Directors.

  • The Transfer Agent operates a “whitelist” comprising investors or prospective investors who are allowed to subscribe for or acquire shares from Shareholders without needing further suitability checks or anti-money laundering verifications. Transfers between these accounts are generally allowed at any time, even when the Fund isn’t accepting new subscriptions or redemptions, providing flexibility within a controlled environment.

  • The Transfer Agent controls the permissions for whitelisting through operations that require the usage of keys that are managed via multi-permission processes using Fireblocks. More about the technical details for the identity management and whitelisting mechanisms can be found here.

3. Is the asset/product present on several chains? Are there any cross chain interactions?

  • BUIDL is currently solely deployed on the public Ethereum blockchain.

4. Are the applicable tokens being used in any other protocols? Please describe the various components of the ecosystem.

  • At the moment, BUIDL tokens are not being used in any other protocols other than the public Ethereum blockchain.

5. How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?

  • Securitize’s Trust Service component manages the permissioning for the contract. The roles involving certain permissions (MASTER for contract upgrades, ISSUER for daily issuances of tokens for new subscriptions, TRANSFER AGENT for transfer agent operations like burns or freezes) are handled via multipermissioned wallets using Fireblocks infrastructure and are under the control of Securitize.

  • A more in depth overview of trusted roles and admin management can be found here.

6. Is there any custom logic required for your token/product? If so please give any details.

  • BUIDL is ERC20 compatible, so no custom logic should be required.

  • However, the token has extended functionality though Securitize’s DS protocol, which deviates from the ERC20 standard. The extended functionality enabled by this protocol can be found in this series of articles.