Applicant Information
Name
Paxos Issuance MENA, Ltd (Paxos International)
Key Information
~5.05% - see this dashboard. Yield is distributed daily, directly on-chain at around 8:30am EST.
Lift Dollar (USDL) reserve assets are held in cash and equivalents in the below categories, as required by our regulator
- Cash deposits residing in a bank deposit account
- US Government Securities with three-month or less residual maturity
- Overnight reverse repurchase agreements overcollateralized by US Government Securities
- US Government Money Market Funds
None.
$8.1M as of submission.
Proposal Summary
Lift Dollar (USDL) is a regulated yield-bearing ERC-20 stablecoin issued by Paxos Issuance MENA, Ltd. (doing business as Paxos International) and overseen by the Financial Services Regulatory Authority (FSRA) in the Abu Dhabi Global Market (ADGM). USDL distributes the yield generated on reserve assets directly to eligible token holders on a daily basis. This is achieved through a rebasing mechanism that increases the circulating supply by the rate of daily distributed interest without any action needed from token holders.
Paxos International proposes an allocation of Ethena’s reserves in a sequenced manner as USDL grows its market presence. Paxos International proposes the following:
- A $5M allocation at the start of the partnership
- An additional $10M allocation once USDL’s overall market capitalization reaches $50M
- $20M incremental allocation once USDL’s market capitalization reaches $100M
- $40M incremental allocation at a USDL market capitalization of $200M
These allocations would enable the Ethena Reserve Fund to immediately start earning yield on their reserve assets via a regulated asset in USDL.
Paxos International would enable direct liquidity for USDL to the Ethena Foundation. We can provide stablecoin (USDC, USDT) on and off ramps to the Ethena Foundation at a 1:1 value. Additionally, Paxos International partners with several market makers where Ethena would be able to source liquidity. We are also actively working to set up liquidity pools in key AMM venues.
Basics and Background
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How will this allocation improve the diversification or capital efficiency of Ethena’s Reserve Fund and/or backing assets?
Ethena’s Reserve Fund allocation to USDL will help give Ethena direct access to competitive yield in a transparent and conservative manner. Due to USDL’s prudential oversight by the FSRA, USDL’s stablecoin reserves may only be held in the most secure and liquid assets which include cash deposits at regulated financial institutions, short-term US Government Securities and US Government Money Market Funds. Further, USDL’s reserves will be examined monthly by an independent third-party to ensure that USDL is adequately reserves. The results of this examination will be published monthly by Paxos International.
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Please describe any experience your firm has in working with decentralized organizational structures
Paxos International was formed in January 2024 and has not completed any contracts to date. Other Paxos Subsidiaries have successfully partnered with the following organizations:
- MakerDAO
- Aave
- Curve
- Compound
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What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
$8.1M - USDL was launched in June 2024. We have a customer pipeline that will likely move this number to $50M within the next month.
Legal Design
Pursuant to FSRA requirements, in the event of Paxos International’s insolvency or another triggering event as defined by the FSRA, the USDL reserves are required to be liquidated and distributed on a first priority basis to all USDL holders on a pro rata basis up to the amount of USDL outstanding on a 1:1 basis to US dollars. Such funds (up to the USDL outstanding amount) are not permitted to be paid to any other party including any creditor of Paxos International, nor is any USDL holder entitled to any additional yield in such an event.
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Describe the legal and contractual structuring for your product, specifically naming any regulatory bodies overseeing the product, if applicable.
The USDL token is centrally minted and burned by Paxos International, licensed and regulated by the FSRA to conduct the Regulated Activity of “Providing Money Services” in the Abu Dhabi Global Market (ADGM). The FSRA has granted Paxos Issuance MENA Ltd. a Financial Services Permission for the provision of Money Services (FSP) to conduct the FSRA-regulated activity of providing money services in and from the ADGM. Under FSRA rules, stablecoins are treated as a “mechanism for storing value” similar to e-money. USDL meets the FSRA criteria to be deemed an Accepted Virtual Asset following the FSRA assessment.
To maintain compliance with its regulatory requirements, Paxos International is bound to any restrictions its regulator provides to protect customer assets, including the inability of Paxos International to engage in rehypothecation of customer assets, other than the permitted investments under the FSRA Fiat-Referenced Tokens (FRT) regulation. Paxos International expressly intends to be thoroughly transparent with robust third-party oversight and be the leader among blockchain-related companies in regulatory compliance. Further, Paxos International works closely with regulators and other parties in the existing financial services ecosystem. USDL is not available in the United States.
Paxos International holds all reserve assets segregated and bankruptcy protected with permitted custodians for the benefit of token holders, in accordance with COBS pursuant to the FSRA framework for Fiat-Referenced Tokens (FRTs). All reserve assets are held by Paxos International for the benefit of the token holders and cannot be used byPaxos International’s general creditors in the event of an insolvency of Paxos International or any of its affiliates.
The Paxos International reserve management approach includes the following safeguards for all assets:
- The mint and burn operation requires the requisite amount of US dollars in the USDL reserve account before Paxos International mints USDL.
- Paxos International employs a robust intraday liquidity management program to assess cash balances and asset custody across all banking and custodial relationships.
- Reserve assets may be held in one or more of the following categories, as required by the FSRA:
- Cash, residing in segregated bank deposit accounts held for the benefit of USDL holders.
- Cash equivalents and debt securities issued by the U.S. Government or organizations that are of both a government and international character with a minimum credit rating of “AA-” with up to three (month) residual maturity.
- Institutional stable NAV USD government money-market funds, domiciled in non-US jurisdictions with weighted average maturities (WAMs) of no greater than 60 days and weighted average lives (WALs) of no greater than 120 days, subject to FSRA-approved limits on the value of reserve assets to be held in such funds and FSRA-approved credit ratings of such funds.
- Reverse repurchase agreements overcollateralized by debt securities issued by U.S. Government with maturities of one business day, with a counterparty that is not Paxos International affiliated and adequately creditworthy (as defined by the FSRA credit rating requirements).
Eligible reserve assets may be acquired and managed directly by the Paxos International treasury and portfolio management team or indirectly through third-party investment managers in the form of separately managed accounts (SMAs).
Smart Contract/Architecture
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How many smart contract audits have been completed with respect to your tokenized product? Please name the auditors and provide a copy of reports.
The USDL smart contract is audited by both Certik and Trail of Bits to ensure that the code is sound and operates as intended. Audits are publicly viewable on github ybs-contract/audits at master · paxosglobal/ybs-contract · GitHub.
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Is the asset/product permissioned? If so, how are you managing user identities? Any blacklisting/whitelisting features?
This asset is permissionless.
In accordance with regulatory requirements, the USDL smart contract includes the ASSET_PROTECTION_ROLE, which has the ability to freeze or seize the assets of an illicit actor when required to do so, whether by law or through court order or other legal process. This ASSET_PROTECTION_ROLE controls two blocklists on the smart contract that can be used as required: _blocklist and _blocklistForReceiving.
Both lists are maintained as key-value maps between addresses and booleans on the smart contract. Addresses on _blocklist are unable to send or receive USDL, and do not earn yield on their holdings. Addresses on _blocklistForReceiving are unable to receive USDL transfers, but do earn yield and may transfer USDL to other addresses.
When USDL’s ERC20.transfer() or ERC20.transferFrom() functions are called, the functions check if either:
- the sending or receiving address is on _blocklist, or
- the receiving address is on _blocklistForReceiving.
If either condition is true, the function rejects the requested transfer. Wallet addresses on _blocklist may continue to hold a USDL balance if seizure action has not been taken. To prevent wallets on _blocklist from being included in the rebase activity, their rebaseShares are converted to fixedShares when the wallet is added to _blocklist. Similarly, when a wallet is removed from _blocklist, its fixedShares are converted to rebaseShares and will again be included in rebase activity.
The USDL token is deployed on the Ethereum network. We are planning to issue on Arbitrum in the coming weeks. The Paxos International issuance platform can enable interoperability of stablecoins and issue them across different networks by minting on one network and burning on another, while ensuring sufficient reserves are backing the total amount of issued stablecoins. Paxos International uses all best practices and standard issuance techniques on different networks to ensure broad compatibility and interoperability.
We will also be enabling a permissionless cross chain solution in the near future through our protocol partners.
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Are the applicable tokens being used in any other protocols? Please describe the various components of the ecosystem.
We are actively working on driving the adoption of USDL in various protocols including:
- Aave
- Curve
- Balancer
- Arbitrum specific venues ahead of our launch of USDL on Arbitrum
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How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?
There are two roles of interest here:
- ASSET_PROTECTION_ROLE - has the ability to freeze or seize the assets of an illicit actor when required to do so, whether by law or through court order or other legal process.
- REBASE_ROLE - has the ability to set the multiplier for the rebasing functionality
- SUPPLY_CONTROLLER_ROLE - ability to increase or decrease the supply of UDSL (mint/burn)
- DEAULT_ADMIN_ROLE - ability to proxy upgrade the smart contract. Also this role can grant/revoke roles
- PAUSE_ROLE - pause a contract in the event of a bug or a security breach
- REBASE_ADMIN_ROLE - ability to configure the rebase settings on the smart contract
Multisig contracts are used for these roles. No single EOA has one of these roles. To execute any of these roles it requires to execute a secure cold signing process in person at a Paxos office with a quorum of trusted individuals.
USDL implements the standard ERC20 interface so no custom logic is required.