Applicant Information
Name: Frictionless Markets Sarl & Frictionless Markets Securities (Luxembourg) as a registered intermediary of BlackRock Institutional Cash Series PLC, a UCITS V fund registered in Ireland.
Frictionless Markets Sarl is the management company of the issuing compartment fsISTUSTD.
The fsISTUSTD Fund is a Luxembourg-based tokenized fund, exclusively invested in the Underlying Fund, the BlackRock Institutional Cash Series (ICS) US Treasury Fund referenced by the Bloomberg ticker ISTUSTD. The Underlying Fund is a public debt constant net asset value (CNAV) short-term money market fund and seeks to maintain a CNAV of 1.00 USD (One U.S Dollar)
Rated by S&P, Moody’s, and Fitch. The Underlying Fund is rated by an external rating agency(ies).
Such rating is solicited and financed by BlackRock.
Key Information
Expected APY: SOFR (Secured overnight finance rate) minus (BlackRock management fee + Frictionless redemption fee).
A management fee & redemption fees apply as follows:
| Threshold | Net Yield* | Management Fee | Redemption Fee** | Underlying Fund Share Class |
|---|---|---|---|---|
| > 1 Thousand USD | 5.00% | 0.20% (20 bps) | 0.15% (15 bps) | Core |
| > 100 Million USD | 5.10% | 0.15% (15 bps) | 0.10% (10bps) | Select |
| > 250 Million USD | 5.155% | 0.125% (12.5 bps) | 0.07% (7bps) | Heritage |
| > 500 Million USD | 5.18% | 0.10% (10 bps) | 0.07% (7bps) | Premier |
*(SOFR as of 30 July 2024) - 5.35%
** Redemption Fee is discounted from the advertised 25bps in the final terms for Ethena Foundation
Underlying asset(s); BlackRock ICS US Treasury Fund Core (Distributing) as described in :
- Frictionless FactSheet FRICTIONLESS_MARKETS-USD-fsISTUSTD-FactSheet-2024-06.pdf - Google Drive
- BlackRock ICS FactSheet https://www.blackrock.com/cash/en-ie/products/228412/blackrock-ics-us-treasury-core-dis-fund
The Fund seeks the preservation of principal and same-day liquidity through the maintenance of a portfolio of high-quality short-term government debt and repurchase agreements. The Fund will invest in US Treasury bills, notes and other obligations issued or guaranteed by the US Government and repurchase agreements where the associated collateral is secured by any of the preceding obligations. The ability to use repurchase agreements ensures increased liquidity.
Frictionless also supports Sterling Government and Euro Government funds, along with the possibility of launching any BlackRock fund offered.
As the fund scales AuM, BlackRock passes the reduction in management fees to the Investor under the shares class table as provided at https://www.blackrock.com/cash/literature/brochure/ics-fund-information-guide.pdf
Minimum/Maximum transaction size: The minimum investment declared in the final terms under MiFID II professional client status is USD 1.000,00 (one thousand U.S. Dollars).
There is no maximum transaction limit.
Please consult the DDQ for more information: DDQ
Current AUM for asset:
Net Assets of Fund as of 29-Jul-2024 is USD 25,140,927,030.74 as per https://www.blackrock.com/cash/en-ie/products/228412/blackrock-ics-us-treasury-core-dis-fund
The Frictionless Institutional Cash US Treasury Fund as issued on Avalanche is here
Volume metrics:
The volume of trades and market depth of the Underlying Fund is published by BlackRock in the underlying deal room at BlackRock Cash Management
Frictionless Markets publishes the Avalanche Snowtrace here
Frictionless Markets also publishes its BlackRock CacheMatrix positions daily, including the holdings exposure & trading reports.
Proposal Summary
We propose that Ethena utilizes the Frictionless Institutional Cash US Treasury Fund and the Frictionless protocol to eliminate cash drag, return maximum daily yield and leverage the fund to ensure Ethena Treasury is actively managing its stablecoin cash positions across its venues.
Frictionless Markets propose to onboard the Ethena Foundation as a professional client under the MiFID II regime of the E.U.
The Ethena Foundation will have the ability to deploy into the Frictionless Institutional Cash US Treasury Funds at minimums of 1,000 USD or its equivalent, whilst enjoying the auto-compounding feature of our daily yield token to maximise the long-term return from the underlying BlackRock Institutional Cash Fund with the utmost flexibility and instant redemptions available from Frictionless Markets. Specifically, we proposed that:
- Ethena allocates its USD 18.4M USDT holding from its DeBank treasury wallet into Frictionless Markets to earn 5.00% in daily yield, which can be settled or auto-compounded.
- Ethena considers exchanging its USD 15.6M DAI holding from its DeBank Maker treasury to maximize the return on its DAI, returning a stable US treasury yield of 5.00%.
With auto-compounding enabled for daily yield for an investment period of 1-year would return:
- 941,453 USD for the USDT Treasury position
- 798,576 USD for the DAI Treasury position
The additive value of compounding over the period is 39,516 USD.
Frictionless Markets will offer a total expense ratio of 0.35% (35 bps) for AuM up to USD 100 Million, thereafter we will offer a total expense ratio of 0.25% (25 bps)
We further propose that the Ethena Foundation transfers its USDT collateral held at various providers to the Frictionless Institutional Cash US Treasury Fund. Our tokens serve as legally transferable financial collateral under the Financial Collateral Act 2005 of Luxembourg, which is globally recognized. On the basis of the USDT collateral as of 30th July, the daily yield on the USDT Collateral alone will be approximately USD 31,200 or USD 11.4 Million per year in lost yield whilst collateral is posted at counterparties.
Basics and Background
How will this allocation improve the diversification or capital efficiency of Ethena’s Reserve Fund and/or backing assets?
Frictionless Institutional Cash US Treasury Fund is exclusively invested in BlackRock Institutional Cash Series US Treasury Fund, the third largest actively managed US Treasury Fund globally, with AuM of 25.1 billion U.S Dollars as of 29th July 2024, providing:
- Daily Yield, issued as a transferable permissioned ERC-3643 tokens
- Instant Redemptions with the deepest market liquidity
- Active Management by one of the world’s largest Asset Managers, BlackRock.
- Elimination of Cash Drag which is prevalent in other treasury products.
This tokenized fund is issued in Luxembourg, providing the most robust global Investor protections under the Financial Collateral Act 2005 and the Securitization Law 2004, ensuring Investors have the protection of both a bankruptcy-remote, orphan-entity structure and the legal protections of the courts of Luxembourg and the EU.
The Frictionless Institutional Cash US Treasury Fund is a zero cash drag fund, capital is deployed immediately via our direct integration with BlackRock CacheMatrix and the underlying transfer agent JP Morgan.
By deploying into the Frictionless Institutional Cash US Treasury Fund, the Ethena Foundation will:
- Receive the highest return with the lowest fees for an instant redemption US Treasury Fund.
- Receive daily yield tokens for transparency, settled on the 1st business day of the following month or auto-compounded back into the fund.
- Enjoy the flexibility of investing a low minimum to maximise returns and avoid the cash drag headaches of other funds.
- Benefit from a fully tax-transparent vehicle located in Luxembourg.
- Have a cross-chain (EVM-compatible) transferable token which serves as proof of treasury reserve and collateral under the Luxembourg Financial Collateral Act 2005.
- Benefit from investment or settlement in any supported FIAT (USD, GBP, EUR, JPY, HKD) or USDC.
Please describe any experience your firm has in working with decentralized organizational structures
Our operational company is invested by Avalanche, the Fund itself, whilst relatively new (since late June 2024) it is designed specifically to handle all structures under the laws of Luxembourg, this includes specialist structures such as SOPARFI and other structures designed to ensure digital asset treasuries can be both successfully onboarded and enjoy the favourable tax environment of the Grand Duchy of Luxembourg.
Frictionless Markets maintains all the standard relationships with digital asset providers such as Circle Mint, Coinbase Asset Management, Prime, Exchange and Custody.
Our in-house legal team is complemented by specialist fund formation and advisory counsel in Luxembourg, with an established track record of interaction with DAOs and Digital Treasuries.
What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
As of 30th of July 2024, the Frictionless Institutional Cash US Treasury Fund holds USD 363,376.63
Attestations of the investments are provided via BlackRock CacheMatrix reports on a weekly basis to match the public blockchain records. These reports can also be issued daily or on demand.
The Frictionless Institutional Cash US Treasury Fund as issued on Avalanche is here
The Net Assets of the Underlying Fund as of 29-Jul-2024 is USD 25,140,927,030.74 as per https://www.blackrock.com/cash/en-ie/products/228412/blackrock-ics-us-treasury-core-dis-fund
Legal Design
Do holders of your product have any shareholder, investor, creditor or similar rights?
Yes, Frictionless Institutional Cash Funds are protected under the Luxembourg Securitization Law of 2004 (as amended), the Financial Collateral Act 2005 (as amended), and the BlockChain Acts I, II, III (as amended).
Investors have the same legal and economic rights as traditional investors in the orphan entity, bankruptcy-remote securitization compartments.
These robust protections ensure Investors have the legal protections of both the E.U. and Luxembourg, the world’s dominant securitization location.
It is a key element of the Luxembourg Securitisation Law of 2004 as recently amended and in force
from March 2022 to provide enhanced investor protection.
Describe the legal and contractual structuring for your product, specifically naming any regulatory bodies overseeing the product, if applicable.
The issuance of the fund tokens qualifies as a financial instrument under the Securitization Law, Financial Collateral Act and Blockchain Laws of Luxembourg. A robust legal opinion which has been vetted by the CSSF (Luxembourg regulator) can be provided as a supplement to this application.
All fsISTUSTD Fund tokens are issued by the FRICTIONLESS MARKETS SECURITIES Securitisation Fund RCSL O46, organised under the laws of Luxembourg and represented by FRICTIONLESS MARKETS Sàrl its Management Company, RCSL B272278 with the Legal Entity Identifier LEI, 213800PVGXAUM7KDT872 within the bankruptcy remote and orphan-entity protected
compartment with the name fsISTUSTD.
The fund is an Article 19 fund under the provisions of the CSSF (Luxembourg) and the EU MiFID II Prospectus Regulation.
The documentation of the fund describes the legal structure, issuances and key investor terms, namely:
Special Management Regulations
Investors sign a subscription agreement to subscribe to the tokens, the tokens are the certificate of the investor’s subscription under the laws of Luxembourg.
How would the proposed allocation be treated in a bankruptcy or insolvency situation?
The principle of bankruptcy remoteness separates the securitised assets, including those in digital format, from any insolvency risks of the securitisation vehicle or of the Issuer, service provider and all other involved parties in the transaction. In the event of bankruptcy of the originator or the servicer to whom the securitisation vehicle has delegated the collection of the cash flow from the assets including digital assets and digital securities, the Luxembourg Securitisation Law stipulates that the securitisation vehicle is entitled to claim the transfer of ownership of the securitised assets and any cash collected on its behalf before liquidation proceedings are opened. Moreover, the Securitisation Law allows for the following:
- Subordination Provision: Arises where the Investors and creditors may subordinate their rights to payment to the prior payment of other creditors or other Investors, this is crucial for tranching the securitisation transaction.
- Non-recourse Provision: Arises where Investors and creditors may waive their rights to request enforcement. This means that, for example, if a payment of interest is in default, the investor may agree to wait for payment and not initiate legal action, as the situation is known or temporary.
- Non-petition Provision: Arises where Investors and creditors may waive their rights to initiate a bankruptcy proceeding against the securitisation vehicle. This clause protects the vehicle against the actions of individual Investors who may have, for example, an interest in a bankruptcy proceeding against the vehicle.
Smart Contract/Architecture
How many smart contract audits have been completed with respect to your tokenized product?
All smart contracts are provided under the permissive MIT License at:
The Frictionless contracts are fully audited by Hacken.io, the most recent audit is 11th December 2023.
The underlying technology ERC-3643 has undergone several audits and is actively managed by the ERC 3643 foundation. ERC-3643 is one of the most widely used digital security tokenization standards globally with ~30 Billion USD of assets tokenized.
Please name the auditors and provide a copy of reports.
The comprehensive audit report conducted by Hacken.io is available for review at Frictionless Protocol Audit Results.
Further details on the smart contracts are available on our public-facing documents at Audit & Security | Frictionless Protocol
Is the asset/product permissioned?
Yes, Frictionless is a permissioned (whitelisted) protocol.
Frictionless supports both direct KYC under AML/CTF laws of the E.U. and reliance mode for dealing with regulated counterparties under the terms of MiFID II Product Governance as defined in the Final Terms at:
Investors are free to transfer fund tokens between each other on a direct transfer basis or on a bid/offer basis via our audited smart contracts.
As a key market protection, if a transfer is attempted to a non-permissioned wallet address (such as an in-eligible Investor) the transaction will fail and a SARs report is automatically raised.
If so, how are you managing user identities?
Users are subject to AML/CTF KYC procedures either directly or under a reliance letter by a counterparty with the necessary permissions in their jurisdictions.
Once the User has passed KYC, their wallet is permissioned on the network via our smart contracts which create an OnChainId and add the relevant claims to the OnChainId.
Users must have an OnChainId to receive or transfer any tokens.
Details on these features are described in our smart contract documentation at:
Any blacklisting/whitelisting features?
The technology in the Frictionless protocol enables sophisticated market features, such as freeze, partialFreeze, forceTransfer along with blacklisting and whitelisting of wallet addresses. If you have lost your keys to the wallet, it is a simple operation to recover the assets.
Details on these features are described in our smart contract documentation at:
Is the asset/product present on several chains?
Currently deployed on Avalanche, will be fully deployed on Base, Arbitrum, Polygon and Ethereum by August 12th.
Are there any cross-chain interactions?
Yes, we have a cross-chain bridge to handle the permissioning of wallets and bridge the tokens across supported chains, we will launch this subsequent to our multi-chain deployment on August 12th.
Are the applicable tokens being used in any other protocols? Please describe the various components of the ecosystem.
Yes, our tokens are interoperable with any ERC-3643 token. We also have smart contracts to enable the exchange of any ERC-20 token for our token, this is used to exchange USDC or USDT, but it can also be used to exchange BUIDL tokens or any ERC-20 derivative for that matter.
Please see our ERC-20 Swap Contracts for more info:
How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?
The roles in the system are very well described at:
README.md · main · dfyclabs / protocol / dfyclabs-tokens · GitLab and in the broader smart contract documentation at:
These roles are managed by the PROTOCOL_ADMIN which is operated from a Google Confidential Compute Cluster in an ISO-27001 secure environment.
We support a wide array of wallet infrastructures at the request of clients.
Is there any custom logic required for your token/product? If so please give any details.
There is no custom logic required, the tokens are ERC-3643 and are compatible with ERC-20 tokens, supporting all the standard ERC-20 interfaces.
The tokens can be extended to include custom logic if desired for offering, eligibility and transfer rules and restrictions.