Arca Funds, an institutional asset manager and fund creator for digital assets, has filed with the US Securities and Exchange Commission (SEC) for the Arca US Treasury Fund.
More interestingly, the fund will issue shares as digital securities in the form of ERC-20 compatible tokens on Ethereum blockchain. Dubbed ‘ARCA UST Coins,’ the tokenized bonds will be minted to function as a stablecoin, and in this case, the reference asset will be the fund’s portfolio.
In an effort to satisfy the SEC, which has so far rejected every crypto-related proposal previously submitted, Arca Funds is attempting to address possible areas of criticism that has made regulators shy away from approval.
Specifically, the new fund employs a fairly straightforward investment strategy as it plans to hold at least 80 percent of its assets in a portfolio of US Treasury securities, which include bills, bonds, and notes. The rest is set to be invested in other types of fixed-income vehicles, including bonds, debt securities and other similar instruments issued by the US and non-US public or private entities.
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Arca’s new fund will set its initial net asset value at $1 with a minimum investment of $1,000 and subsequent investments of at least $100. In addition, the company expects its tokens to have an average portfolio duration between zero and eight years.
Arca further explains in the filing that its investments will focus on assets that are guaranteed by the US government or government-sponsored enterprises. The document further reads:
“Investment Strategy: will be invested in cash or cash equivalents including money market instruments, commercial paper, bank certificates of deposit, banker’s acceptances, and repurchase agreements collateralized by Treasury Securities. The Fund’s continuous offering is expected to continue in reliance on Rule 415 under the Securities Act of 1933 until the date the Fund has sold [1,000,000] shares, or such shorter date as the Board may determine.”
While the STOs are seen as the next big thing in the blockchain sector, a lot of questions remain. Earlier this month, two of SEC’s prominent executives provided guidance to help crypto assets issuers and providers determine whether their token is a security or not. The main takeaway was that the SEC has made it clear that the Howey Test applies to crypto as it does to other investments.