Applicant Information:
Name: Superstate Short Duration US Government Securities Fund (“USTB” or the “Fund”)
Website: https://superstate.co/ustb
Primary Contact
Name: Francis Gowen (FIG)
Title: Protocol Relations Lead, Superstate Inc., the Fund’s Investment Manager
Country: United States
Email: fig@superstate.co
Twitter & Telegram: @francisgowen
Forum: @fig
Key Information:
Expected APY: Targeting returns in line with the federal funds rate, providing current income as is consistent with liquidity and stability of principal. The rolling 7-day yield net of fees is 5.35% as of 07/22/2024.
Underlying asset(s): Short-duration U.S. Treasury Bills. At least 95% of the portfolio is invested in short-duration T-Bills, but a maximum of 5% can sit in cash for liquidity purposes. The current weighted average maturity of the portfolio is 29 days with ~64% of the portfolio in < 30-day maturity T-Bills.
Anyone may view weekly holdings via Superstate’s website: USTB Fund. Additionally, we are preparing to launch proof of reserves with Chainlink enhancing trust and transparency.
The holdings as of July 22, 2024 are below:
| Security Name | Maturity Date | Current Yield | Current Value | % Portfolio |
|---|---|---|---|---|
| U.S. Treasury Bill | 07/25/2024 | 5.39% | $2,398,968.00 | 2.54% |
| U.S. Treasury Bill | 07/25/2024 | 5.41% | $999,570.00 | 1.06% |
| U.S. Treasury Bill | 07/30/2024 | 5.38% | $4,794,432.00 | 5.08% |
| U.S. Treasury Bill | 07/30/2024 | 5.38% | $998,840.00 | 1.06% |
| U.S. Treasury Bill | 08/01/2024 | 5.39% | $2,945,723.00 | 3.12% |
| U.S. Treasury Bill | 08/01/2024 | 5.41% | $998,550.00 | 1.06% |
| U.S. Treasury Bill | 08/06/2024 | 5.39% | $2,793,868.00 | 2.96% |
| U.S. Treasury Bill | 08/08/2024 | 5.37% | $4,039,956.00 | 4.28% |
| U.S. Treasury Bill | 08/13/2024 | 5.37% | $2,143,099.00 | 2.27% |
| U.S. Treasury Bill | 08/13/2024 | 5.38% | $3,987,160.00 | 4.22% |
| U.S. Treasury Bill | 08/13/2024 | 5.40% | $7,475,925.00 | 7.92% |
| U.S. Treasury Bill | 08/15/2024 | 5.38% | $7,224,625.00 | 7.65% |
| U.S. Treasury Bill | 08/15/2024 | 5.39% | $3,188,800.00 | 3.38% |
| U.S. Treasury Bill | 08/20/2024 | 5.38% | $3,983,000.00 | 4.22% |
| U.S. Treasury Bill | 08/20/2024 | 5.39% | $4,829,388.00 | 5.12% |
| U.S. Treasury Bill | 08/20/2024 | 5.42% | $995,750.00 | 1.05% |
| U.S. Treasury Bill | 08/22/2024 | 5.39% | $1,393,672.00 | 1.48% |
| U.S. Treasury Bill | 08/22/2024 | 5.40% | $4,977,400.00 | 5.27% |
| U.S. Treasury Bill | 08/27/2024 | 5.39% | $4,973,750.00 | 5.27% |
| U.S. Treasury Bill | 08/27/2024 | 5.42% | $994,750.00 | 1.05% |
| U.S. Treasury Bill | 08/29/2024 | 5.39% | $3,033,073.00 | 3.21% |
| U.S. Treasury Bill | 09/03/2024 | 5.41% | $4,720,265.00 | 5.00% |
| U.S. Treasury Bill | 09/05/2024 | 5.41% | $1,490,190.00 | 1.58% |
| U.S. Treasury Bill | 09/12/2024 | 5.41% | $992,420.00 | 1.05% |
| U.S. Treasury Bill | 09/17/2024 | 5.39% | $2,479,225.00 | 2.63% |
| U.S. Treasury Bill | 09/17/2024 | 5.42% | $2,107,341.00 | 2.23% |
| U.S. Treasury Bill | 09/19/2024 | 5.41% | $1,239,300.00 | 1.31% |
| U.S. Treasury Bill | 09/24/2024 | 5.42% | $1,486,050.00 | 1.57% |
| U.S. Treasury Bill | 09/26/2024 | 5.39% | $3,763,634.00 | 3.99% |
| U.S. Treasury Bill | 10/03/2024 | 5.40% | $2,968,350.00 | 3.14% |
| U.S. Treasury Bill | 10/08/2024 | 5.41% | $988,730.00 | 1.05% |
| U.S. Treasury Bill | 10/10/2024 | 5.39% | $2,965,320.00 | 3.14% |
Minimum/Maximum transaction size: $100,000 minimum initial investment with no minimum or maximum transaction size for subsequent purchases or redemptions.
Current AUM for an asset: USTB’s AUM is $93,506,529.05 (as of July 22, 2024)
Volume Metrics: 78 transactions (since inception to July 22, 2024). $75M+ in gross redemptions processed over the last 90 days, each one settled to clients either T+0 or T+1.
Basics and Background:
How will this allocation improve the diversification or capital efficiency of Ethena’s Reserve Fund and/or backing assets?
Ethena’s goal with this proposal is to diversify the Reserve Fund and/or backing assets. Given that these pools of capital are currently highly concentrated in non-yielding assets, Superstate proposes Ethena diversify into liquid, stable, and uncorrelated assets backed by US Treasury Bills.
USTB targets the federal funds rate, providing a reliable income source while maintaining liquidity and principal stability, enabling Ethena to generate income on currently idle capital. This makes USTB a great fit for Ethena’s investment objectives and supports the growth of USDe.
In addition, Ethena should look to retain as much yield for its balance sheet as possible by maximizing net yield back to the protocol. USTB has 0.0% fees (net yield 5.35% for investors) as Superstate has waived all fees until the Fund reaches $200M in assets, after which, the management fee will be 0.15% (in line with traditional money market fund fees). There are zero minting or redemption fees charged by Superstate and Ethena is permitted to withdraw from the fund at any time with no penalty. Compared to other products with layers of fees, USTB provides one of the most competitive after-fee returns for investors compared to peers.
Given the Reserve Fund is in place to support the protocol during periods of negative perp funding rates and as a bidder of last resort for USDe in open markets, Ethena must prioritize liquidity for all underlying funds while also being able to grow additional insurance when assets backing the protocol are idle. This unique safety net provided by the protocol is paramount to maintaining a resilient product for Ethena users, especially given the potential for negative funding rates experienced historically (albeit temporary).
Minting/Redeeming Mechanics
Superstate recommends governance to consider not just the underlying assets for a given issuer, but also considers additional factors that will support liquidity needs for the protocol - specifically minting and redemption mechanics.
USTB offers daily liquidity and our third party fund accountant produces a daily NAV each Market Day (Market Days are defined as when both the New York Stock Exchange and the Federal Reserve Bank of Philadelphia are open). Purchases and redemptions can be made in either USDC via onchain transfers to a client-specific deposit address or fiat (cash) via bank wire, depending on Ethena’s preference.
Liquidity is daily during Market Days, as defined above. Superstate Inc. mints or burns USTB tokens at 9:00:00 AM ET at the prior day’s NAV. After 9:00:00 AM ET, purchases/redemptions triggered by investors are processed on the next Market Day. If redemptions are requested prior to 9am ET, Ethena will receive USDC or USD on a T+0 basis. If redemptions are requested after 9am ET, Ethena will receive USDC or USD on a T+1 basis.
For more details, please refer to our Knowledge Base: USTB Documentation
Superstate Background
Superstate is an asset manager modernizing investing through tokenized financial products, bringing traditional assets onchain via compliant, programmable, and composable tokens.
USTB offers a crypto-native, compliant, and transparent solution bringing U.S. Treasury Bills on-chain. USTB is a yield-bearing ERC-20 token, and investment is limited to Qualified Purchasers who undergo KYC, with Ethereum addresses added to a proprietary AllowList.
Please describe any experience your firm has in working with decentralized organizational structures
Our team is uniquely qualified to work with and understand decentralized organizations. Collectively, Superstate’s team has played a significant role in building the core primitives of DeFi, including Compound, Aave, Frax, Uniswap, and Scroll. Our CEO Robert Leshner was one of the founders of Compound Labs, which developed the Compound Protocol and the Compound Governance module.
Recently, we have been actively collaborating with the Arbitrum DAO to integrate USTB benefits into its treasury (second-largest allocation at 17%). We have engaged closely with their delegates, STEP committee reviewers, and the Arbitrum Foundation to strategically select and implement Superstate’s products. You can observe our engagement and client service on the forum.
Fig Gowen (Protocol BD) served as a reviewer on Aave Grants, a trustee of dYdX’s Operations Trust, and contributed to the growth of the major DeFi ecosystem since 2021. Our engineering team is responsible for developing pillars of DeFi ecosystems such as Frax’s Governance, Uniswap’s Frontend, and Scroll’s zkEVM Architecture.
At Superstate, we strongly believe in decentralized organizational structures and are committed to supporting DAOs and their communities to thrive in the future through compliant, innovative, and robust asset management. To learn more about our team and our experience, please visit: Superstate - About Us
What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
Superstate Inc.’s total assets under management are $113,894,221 as of July 25, 2024.
USTB has 30+ clients and delivered $1.2M+ in interest since inception.
Legal Design:
Do holders of your product have any shareholder, investor, creditor or similar rights?
Yes, investors in USTB are the owners of the Fund and are granted shareholder rights that are detailed in the Fund’s offering materials (shared over email). Owners are shareholders in Superstate Short Duration US Government Securities Fund, a Delaware Statutory Trust (DSTA). This Asset Trust is bankruptcy remote and separate from Superstate Inc. Each shareholder will be entitled to the benefits of the inter-series limitation of liability provided for in the DSTA.
Describe the legal and contractual structuring for your product, specifically naming any regulatory bodies overseeing the product, if applicable.
Legal Structure
The Fund (Superstate Asset Trust) is organized as a Series in a Delaware Series Trust. Superstate Inc. serves as the Investment Manager for the Fund. The Delaware Series Trust structure means the shareholder’s investment in the Fund is in a separate legal entity which is bankruptcy remote from Superstate Inc. Additionally, this structure affords shareholders with inter-series liability, meaning shareholders will not be subject to potential liability that arises against Superstate Inc. The Fund is available to Qualified Purchasers in the United States, the Cayman Islands, the British Virgin Islands, and Bermuda.
The Fund is exempt from registration with the U.S. Securities and Exchange Commission (SEC) as a private fund per Section 3(c)(7) of the Investment Company Act and is only available to a limited subset of potential investors that meet certain criteria as outlined in the Private Placement Memorandum. The Fund is offered pursuant to 506(c) exemption of Regulation D of the Securities Act of 1933 and has filed Form D available here.
Superstate Inc., the Fund’s Investment Manager, is a Delaware corporation. Superstate Inc. is currently exempt from registration with the SEC in reliance on the private fund adviser exemption under the Investment Advisers Act of 1940 (“Advisers Act”) and is considered an Exempt Reporting Adviser. Information about Superstate Inc. can be found by visiting the SEC website www.adviserinfo.sec.gov and searching for our firm name.
Contractual Structure
There are two key legal documents associated with investing in USTB:
- Private Placement Memorandum
- Investment Agreement
The Private Placement Memorandum (provided to the Ethena Foundation) outlines the potential risks and structure of the Fund. These considerations can be found on page 33, under “Certain Risk Considerations,” and are categorized as General Risk, Tax Risk, and Blockchain Risk factors.
The Investment Agreement is a binding agreement between Ethena Foundation and the Fund where the investor provides information and representations that are used for determining eligibility. Further, the terms of the Fund are described and assented to by the investor.
The information provided within the Private Placement Memorandum and the Investment Agreement is not a recommendation to invest. Investors must rely on their own examination and assessment of the risks and merits involved prior to making an investment decision.
Institutional Service Providers
In 2023, Superstate Inc. conducted a robust Request For Proposal (RFP) process to identify world-class service providers to support USTB in various capacities. The following list reflects the companies selected by Superstate to support USTB:
Sub-Adviser: Federated Hermes
Superstate has partnered with Federated Hermes, a leading fixed-income asset management firm with over $780B in AUM. Susan Hill, CFA, a senior portfolio manager with 30+ years of experience, oversees the Fund’s investment mandate.
Custodian: UMB Bank, N.A.
All underlying securities are held in a segregated custodial account at UMB Bank, N.A., an OCC-regulated bank with over $45B in total assets.
Fund Accountant: NAV Consulting
NAV Consulting calculates the Fund’s NAV daily based on holdings and activity, providing rapid data delivery through an API. The firm provides these services for over $200B in assets.
Auditor: Ernst & Young LLP
Ernst & Young LLP, one of the ‘Big 4’ accounting firms, conducts annual audits of the Fund’s financial statements, ensuring transparency and accurate reporting.
USDC Services: Circle Internet Financial
Circle Internet Financial provides mint/burn services for USDC transactions, converting USDC to USD for purchases and redemptions into and out of the Fund.
MPC: Fireblocks
Superstate uses Fireblocks for secure private key management and a 2 of 4 approval process for minting USTB tokens and managing the AllowList.
How would the proposed allocation be treated in a bankruptcy or insolvency situation?
Ethena’s assets are safeguarded in a bankruptcy-remote Delaware Statutory Trust, the Superstate Asset Trust, that is independent of Superstate Inc. and wholly owned by investors in the Fund. Superstate Inc. and its officers/key contributors only act as service providers to the Fund providing investment advisory, technology, and other services.
In the event of the insolvency or bankruptcy of Superstate Inc., investors shall have the right to appoint a new Investment Manager to continue executing the investment mandate or to liquidate the securities and distribute the proceeds among the investors.
Smart Contract/Architecture
How many smart contract audits have been completed concerning your tokenized product? Please name the auditors and provide a copy of reports.
Superstate has performed one smart contract audit for USTB via ChainSecurity. Ethena can read more about our audits and ongoing bug bounty via the link here.
Smart Contract Auditor: ChainSecurity
Date: November 6th, 2023
Superstate Inc. has also undergone a systems audit via Trail of Bits.
Is the asset/product permissioned? If so, how are you managing user identities? Any blacklisting/whitelisting features?
Yes – investors must undergo a standard KYC/AML process administered by Superstate Inc. before being able to purchase USTB. As part of onboarding, Superstate Inc. collects Ethereum addresses from each investor, if they choose to hold shares in the fund on Ethereum. Upon successful onboarding, Superstate adds the investor’s provided addresses to an AllowList smart contract which ensures USTB is only held in approved addresses associated with KYC’d investors. The AllowList prevents any other addresses (EOAs or smart contracts) from minting, transferring, or receiving USTB. Adding addresses to the AllowList requires 2 of 4 signatures via Fireblocks MPC administered by Superstate.
Is the asset/product present on several chains? Are there any cross chain interactions?
Currently, USTB is only available on Ethereum Mainnet as an ERC-20 token. Certain investors may choose to hold their shares only in the book-entry form (off-chain) instead of tokenizing shares. If investors choose to use book-entry, they can mint USTB tokens at a later date. If investors choose to mint USTB, they can switch to book-entry at a later date.
Are the applicable tokens being used in any other protocols? Please describe the various components of the ecosystem.
Similar to the goals for this proposal, USTB has been selected by Arbitrum and another undisclosed protocol to support their treasury management and reserve needs.
USTB is not yet integrated into other DeFi protocols, but we intend to expand use cases for our investors to use USTB in secondary markets for collateral and settlement across various ecosystems and protocols, depending on client demand and regulatory restrictions.
Our vision for Superstate is to make our products widely accessible across different ecosystems and protocols to benefit onchain investors. We are actively engaging with lending protocols, DEXs, and various blockchain networks to ensure our products are available where they will provide the most utility possible in a compliant manner.
Beyond on-chain protocols, USTB is currently supported by institutional intermediaries (e.g. Custodians, OTC desks and Prime Brokers), allowing clients to use USTB as collateral or for settlement. We’re also in discussion with various Centralized Exchanges as well to support similar use cases. For example, USTB has recently been used in both bilateral and tri-party transactions with leading digital asset institutions, including FalconX, Nonco, BitGo, and Arbelos. For more details on these case studies, please see the press releases below.
- Creating More Efficient Markets with Tokenized Assets – FalconX
- BitGo Sets the New Standard for Tri-Party Digital Asset Transactions with Arbelos Markets, Nonco and Superstate’s USTB
USTB enhances capital efficiency in trading and offers similar potential for Ethena. We look forward to collaborating with the community to increase the potential for the protocol to maximize capital efficiency as well.
How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?
Superstate’s USTB is built to be robust, reflecting similar structures in traditional finance that have been developed over several decades and are governed by applicable law. The Fund’s investment mandate is executed by experienced portfolio managers who deploy capital within the Fund, based on thorough analysis, industry expertise, and adherence to fiduciary responsibilities. Superstate strives to provide total transparency into every detail of the Fund, including public and private information, holdings, and NAV.
Additionally, Superstate has built different user permissions in our Investor Portal, supporting both Admin (edit) and Team Member (read-only) privileges. The list of users and their respective roles are controlled by Ethena. We employ a robust authentication and authorization system to ensure that only authorized personnel have access to sensitive functionalities and data. Investors can use the Portal to see their portfolio’s performance, transactions, and any actions taken by administrators or trusted roles.
Investors trust Superstate to perform mint/burn activities per the 2 of 4 multi-signature standards outlined above (using Fireblocks MPC) and to continue developing reliable technology and infrastructure while getting independent third-party audits as needed. Superstate Inc. limits access to Circle and custody systems via multi-factor authentication, distributed across key management personnel. Regular audits and reviews are conducted to ensure compliance with internal controls and industry regulations.
Is there any custom logic required for your token/product? If so please give any details.
No, USTB is built on a standard ERC-20 OpenZeppelin Contract.