Compound founder launches new company "Superstate": tokenizing U.S. Treasuries on Ethereum

In contrast, Superstate’s advantage is that its founder has sufficient resources from wealthy people in the crypto world.

AAVE founder Stani Kulechov now emphasizes his new identity as the founder of Web3 social protocol Lens Protocol .

Also as a leading DeFi lending protocol, Compound founder Robert Leshner seems to be unwilling to be lonely and has started a new entrepreneurial journey. He is targeting the current hot narrative - the tokenization of real-world assets (RWA).

On June 29, Robert Leshner announced the birth of his new company, Superstate, on Twitter.

“Today, I’m excited to announce the launch of a new company, Superstate, whose mission is to create regulated financial products that bridge traditional markets and the blockchain ecosystem.

The main limiting factor of DeFi is that crypto-native assets are the only interoperable assets. But eventually, hundreds of trillions of “off-chain” assets will come to the blockchain, and we plan to facilitate this migration.

On Monday, we filed a preliminary prospectus with the SEC for our Superstate Short-Term Government Bond Fund, the first step in a long journey to upgrade financial markets.”

According to documents filed with the U.S. Securities and Exchange Commission ( SEC ) on June 26, Superstate will use Ethereum as an auxiliary record-keeping tool and create a short-term government bond fund to invest in "ultra-short-term government securities," including U.S. Treasury bonds, government agency securities, etc. In addition, the document also emphasizes that the fund will not directly or indirectly invest in any assets that rely on blockchain technology, such as cryptocurrencies.

Currently, Superstate has completed a $4 million seed round of financing, with investors including ParaFi Capital , 1kx , Cumberland Ventures and Distributed Global .

To put it simply, they are committed to purchasing short-term U.S. Treasury bonds and putting them on the chain, using blockchains such as Ethereum to make secondary records, tracking the ownership shares of the fund, and can trade directly on the chain.

If Superstate's product is approved, cryptocurrency tycoons and blockchain-native funds will be able to obtain high returns on U.S. government bonds without changing the way they manage their portfolios. After all, the current risk-free U.S. Treasury yield is already significantly higher than the DeFi yield.

“Our vision is to create an SEC-registered investment product that will compete with stablecoins over time as a reserve asset and settlement option for cryptocurrencies,” Superstate wrote in a statement to CoinDesk.

Starting with the tokenization of U.S. Treasury bonds, once this scenario is truly implemented and widely used, it will pave the way for tracking and trading real-world assets on the blockchain in the future. However, this road is full of layers of supervision.

Founder Leshner also said that everyone holding the asset must be whitelisted, and Superstate will not whitelist smart contracts such as Uniswap or Compound, so such DeFi applications cannot use it.

Can Superstate’s on-chain Treasury bond product be approved by the SEC?

At present, the probability is quite high, and two similar products have been approved by US regulators.

"FOBXX" launched by Franklin Templeton: The fund was first launched in 2021 and became the first mutual fund registered in the United States to use blockchain to process transactions and record ownership.

"WTSIX" launched by WisdomTree: a short-term Treasury digital fund launched in 2022, investing in short-term U.S. Treasury bonds and using blockchain for secondary records.

WisdomTree President Jarrett previously said: “We expect all financial assets to eventually move to blockchain infrastructure, and this is an important step in that direction as we bring mainstream investments such as fixed income, stocks and commodities into the digital world through blockchain-backed funds and tokenized assets.”

WTSIX was officially issued on January 18, 2023, with a fee rate of 0.41% and a minimum investment of US$25, but the current total net value is only US$993,600.

In contrast, Superstate’s advantage is that its founder has sufficient resources from wealthy people in the crypto world.

In 2021, Compound Labs launched Compound Treasury, partnering with Fireblocks and Circle to allow institutional clients such as fintech companies to convert US dollars into USDC. These USDC tokens will be deployed on Compound at a guaranteed interest rate of 4%, which was far higher than the US Treasury yield at the time.

In 2022, SCB 10X, the venture capital arm of Thailand's Siam Commercial Bank, announced a deposit into Compound Treasury. However, in the first quarter of 2023, Compound Treasury announced its closure. After all, at this moment, DeFi returns have high risks and low returns.

So the question is, if the United States subsequently cuts interest rates significantly, Treasury yields drop significantly, and DeFi yields rise sharply, then what is Superstate’s narrative?

Once upon a time, Compound Treasury helped traditional institutions off the chain to make money through arbitrage in the crypto world; now, Superstate helps crypto upstarts make profits in the fiat currency world. The paths are different, but the goals are the same.

From Compound Treasury to Superstate, Comrade Robert Leshner remains true to his original intention: to help rich people make more money.