14 July 2020
While it has always been tough for cryptocurrency firms to get through the regulatory approval of SEC, the Los Angeles-based money manager Arca Labs has managed to squeeze its way through.
Arca Labs, which manages institutional-grade crypto assets, received a go-ahead from the U.S. Securities and Exchange Commission (SEC) for its new Ethereum-based blockchain transfer fund.
Dubbed as the “Arca U.S. Treasury Fund”, it is a close-ended SEC-registered fund open for investors. Reportedly, the fund invests a majority of its assets in short-term U.S. Treasury notes and bills. The fund’s digital securities dubbed ArCoin will be traded on top of the Ethereum blockchain network.
Arca CEO Rayne Steinberg called it his company’s victory to bring traditional finance and digital assets together. “Our announcement today is a ground-breaking and transformative step toward the unification of traditional finance with digital asset investing as this new category of regulated, digital investment products is made available to investors,” he said.
The Arca U.S. Treasury Fund is also the first-of-its-kind, having a representation of the cryptographic tokens and approved under SEC’s Investment Company Act of 1940.
Arca’s latest approval from the SEC comes after 20 months of continuous revisions with the fund. Previously, the Arca executives had submitted a proposal for a hybrid digital assets fund. However, it later decided to move the investment to less risky assets like Treasury bills. Throughout the entire application process, Arca worked with the law firm Morrison & Foerster.
What makes it special is that the Arca Labs fund is powered with blockchain technology that brings added security and efficiency to the overall trading and settlement process. Susan Gault-Brown, a partner at Morrison & Foerster, said:
“The fund is significant because it is the first registered fund to issue digital securities through the use of blockchain technology. As a result, the fund and the digital securities it issues are subject to a comprehensive regulatory framework while introducing an innovative and versatile asset to the digital ecosystem.”
The digital securities ArCoin uses Ethereum’s ERC-1404 protocol. The ERC-1404 is a derivative of Ethereal ERC-20 protocol but is more restrictive. The difference is that the ERC-1404 permits sending tokens only to some whitelisted addresses and not just any address.
Being an SEC-registered fund, the Arca U.S. Treasury Fund needs to have daily net-asset-value reporting as well as the assets held in a statutory trust overseen by an independent board of trustees. Moreover, it also needs to have the necessary bankruptcy protections in place and the periodic auditing of its financial statements.
Speaking about this overall development, Jerald David, president of Arca Capital Management, added: “The digital assets ecosystem is a rapidly growing and evolving industry. We are establishing Arca Labs at the forefront of this industry to innovate digital investment products that provide regulatory oversight and transparency, along with a daily valuation that investors look for in their traditional core investment holdings”.