Applicant Information
Name: PV01
Key Information
Company:
PV01 has built the next-generation platform for debt capital markets, offering access to institutional grade, yield-bearing and digitally native bonds on public blockchains. PV01’s non-custodial platform Pivio allows issuers and institutional investors access to the primary and secondary bond markets in a transparent and efficient manner.
Product:
PV01’s digital bonds are the world’s first blockchain native debt secured by assets in a bankruptcy-remote SPV under English law - the gold standard for bond issuance. Our stable RWA repackaged product, a digital bond represented by a fully transferable bearer ERC-20 token called a ‘TBL’ token, is collateralized (secured) by a direct, 1-for-1 purchase of a single, underlying US Treasury Bill having the same maturity and same face amount. TBLs are issued on the Ethereum blockchain in bearer (dematerialised) form represented by the ERC-20 bond tokens. Token holders have secured interest in the underlying T-Bill. TBLs can also be automatically rolled over to a new bond.
Maturities: Flexible; various maturities available (from 1 week to 12 months).
Expected APY: 5.30% fixed APY for a 1-month T-Bill, 5.05% fixed APY for a 3-month T-Bill (as of 12th of August, net of fees).
Underlying asset(s): United States Treasury Bills (individual bond issuance, down to a single CUSIP).
Minimum/Maximum transaction size: Minimum/Maximum transaction size: $500,000 / No maximum
Current AUM for asset: over $10mn.
Current Volume metrics: over $30mn in issuance volumes over the last three months.
Proposal Summary
Brief outline of the requested allocation of Ethena’s Reserve Fund to your asset/product and benefit to Ethena.
We are asking for a $10-15mm allocation of Ethena’s Reserve Fund. While we could manage the full amount of ~$46.5mm, we look forward to demonstrating the quality of our product. We believe that your initial experience will justify a much larger allocation in due course.
Our TBLs are as proximate as possible on-chain to owning a T-Bill in the fiat system both legally and economically, with the fewest intermediary layers. They are structured as fixed-date debt, each backed 1-for-1 by a single US Treasury Bill having the same maturity and aggregate principal amount. We can issue TBLs based on investor requirements in terms of maturity, size, denomination (e.g. USDC, USDT, etc.). Importantly, TBLs are not funds, they are legally bonds under English law and, unlike some other products, PV01 does not manage a pool of assets on behalf of investors. TBLs provide direct exposure to individual US T-Bills in digital form - nothing more and nothing less.
For example, an initial $10mn investment into a TBL with a 1-month maturity, would yield approximately 5.30% APY (as of 12th of August, net of fees) and can be rolled over automatically month over month to be compounded as they mature.
Basics and background
How will this allocation improve the diversification of capital efficiency of Ethena’s Reserve Fund and/or backing assets?
Investing in our TBLs allows Ethena to purchase a regulated, risk free, transparent and provable on-chain asset that will directly increase capital efficiency and diversification while mitigating unnecessary risks.
The benefits of investing in TBLs will improve capital efficiency and diversification of Ethena’s Reserve Fund by helping to maintain a secure reserve and by generating consistent and predictable returns from a transparent and regulated risk free on-chain asset, as well as from using our TBLs as collateral. Unlike managed funds that abstract away the trust and decision making over asset allocation, our product empowers Ethena to directly implement the Reserve Fund’s yield strategy.
Our robust and well-defined legal and contractual structure, as well as proven issuances with major crypto institutions, is a testament to our ability to offer TBLs both in terms of scale and velocity, making it more attractive and secure than any other tokenized Treasury product available on the market. TBLs are therefore the most suitable product to enhance confidence in the Reserve Fund, USDe and the overall Ethena ecosystem.
Please describe any experience your firm has in working with decentralized organizational structures.
Our firm has extensive experience working with decentralized organizational structures and scoping out their yield and cash management requirements, including fine tuning Treasury management solutions for them. In previous roles, our team members have worked with AMMs and have actively participated in DAO events, including as the market maker for the biggest L1 launch of 2021. PV01 is committed to working with decentralized organizations and importantly, has the knowledge required to service the particular needs of Ethena.
What are your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
We have completed over $30mn in issuance volumes in the last three months, of which there are over $10mn worth of bonds outstanding.
Legal design
Do holders of your product have any shareholder, investor, creditor or similar rights?
The TBLs are debt instruments issued directly on–chain. They represent limited recourse debt claims against the SPV issuer. Unlike a fund product, they do not represent ownership or equity rights.
Describe the legal and contractual structuring for your product, specifically naming any regulatory bodies overseeing the product, if applicable.
PV01 Capital Markets Ltd (PV01), a company incorporated under the laws of Bermuda acts as an arranger and dealer of the TBL issuances.
PV01 is licensed by the Bermuda Monetary Authority under the Digital Asset Business Act 2018 of Bermuda to operate as a broker and dealer and digital asset services vendor in respect of digital tokens that represent debt claims.
PV01 is a 100%-owned subsidiary of HDL MF SA, a company incorporated in Belgium.
The Issuer, Digital Bonds Limited, was established in September 2023 and incorporated as an orphan special purpose vehicle in the form of a segregated accounts company (“SAC”) under the laws of Bermuda. The entire issued share capital of the Issuer is held by a Share Trustee on trust for charitable purposes. The Issuer’s sole business purpose and activity is the issuance of Digital Bonds and the purchase of collateral for such Digital Bonds through its segregated accounts (each acting as a separate issuer). Digital Bonds Limited is also regulated under the Digital Asset Business Act 2018 of Bermuda for the issuance of bond tokens.
The bonds are constituted under a Deed Poll entered into by the Issuer for the benefit of each investor in the TBLs from time to time, which includes provisions:
(i) constituting the Issuer’s obligations under the Digital Bonds;
(ii) providing for the issuance of the TBLs in bearer form issued via the smart contract on the blockchain;
(iii) providing for the Issuer’s obligations to be attached to the TBLs; and
(iv) governing title to and the rules of transfer of ownership of the bonds,
PV01 would be happy to share with the Ethena Foundation all legal documents (including licenses and documents related to TBL issuance) upon request.
How would the proposed allocation be treated in a bankruptcy or insolvency situation?
The SPV is structured as a fully bankruptcy remote entity. Ehena’s assets, like any investor’s, are protected from a PV01 bankruptcy due to the fact that:
- The digital bonds are limited recourse (other investors cannot claim on TBLs they do not own)
- Transaction documents include market-standard non-petition provisions
- The SPV’s shares are held on trust for charitable purposes by a licensed Trustee in Bermuda
- The SPV has no other business other than the issuance of digital bonds
- The SPV has no employees
The net proceeds of the issuance of the TBLs are applied by the Issuer toward the purchase of the underlying T-Bills to be deposited to the SPV’s account with the custodian and fully secured by a security interest granted to the Security Agent for itself and for the benefit of the investors over, inter alia, the custody account and the underlying T-Bills.
Ethena as a bondholder has a debt claim against the bankruptcy remote SPV holding the underlying collateral securing the debt claim. The collateral is held in a segregated custody account with the custodian in compliance with the FCA’s CASS regulatory framework [Link] and are as such protected from a bankruptcy of StoneX the custodian. In summary, the assets are protected from a PV01 bankruptcy due to the SPV structure as well as from a bankruptcy from the custodian due to the FCA’s CASS framework.
Smart Contract/Architecture
How many smart contract audits have been completed with respect to your tokenized product? Please name the auditors and provide a copy of reports.
We have done multiple audits with different versions of our smart contracts. The latest ones are:
- Internal PV01 audit
- Crypton Studio (can provide the PDF for the audits)
Our initial implementation (in addition to the two above) has also been audited by Hacken and Verichain and no open issues were identified at the end of the audits.
Please see the report here: Audits/PV01/Smart Contract Audit report - PV01 OnChain bonds - 11.01.2024.pdf at main · CryptonStudio/Audits · GitHub 4.
Is the asset/product permissioned? If so, how are you managing user identities? Any blacklisting/whitelisting features?
The permissioning is similar to that of USDC with regards to minting, burning and transferring.
Transfers are allowed except when the recipient is in a blacklist (maintained by Chainalysis) to prevent sending to known sanctioned addresses.
Minting and burning require the investor’s wallet address to be whitelisted, which corresponds to being KYC’d by the regulated entity. Ethena would be one such investor.
Is the asset/product present on several chains? Are there any cross chain interactions?
The product is currently issued on Ethereum and is ready to be deployed on other blockchains such as Base, Arbitrum, Optimism and others.
Are the applicable tokens being used in any other protocols? Please describe the various components of the ecosystem.
We anticipate to list bond tokens on the Curve AMM imminently. Being transferable and non-rebasing, the tokens can be used in any system that supports the ERC-20 interface (i.e. as collateral). TBLs are currently being used in protocols such as ERC-4626 and are expected to be launched soon on other protocols.
How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?
Ownership of TBLs is trustless, they behave in a similar way as other ERC-20 tokens such as USDC.
Administration of the smart contract uses an admin key that is protected by Fireblocks. As a regulated entity, we follow the guidance of the Digital Asset Custody Code of Practice of the Bermuda Monetary Authority. Two out of four MPC approvals are required for blockchain operations.
The investment process into the underlying US T-bills are executed by PV01 in accordance with a regulated process overseen by the BMA, which includes some functions related to on/off ramping and off-chain asset purchases.
Is there any custom logic required for your token/product? If so please give any details.
TBLs are ERC-20 tokens, which are held in custody and transferred into any wallet.
Two additional functions are important during the lifecycle of each bond token:
- a “claim” function to receive the final redemption payment at the maturity of the bond.
- a “purchase” process at the creation of each bond to mint tokens.