[FIP - 327] Onboarding Frax to tfBILL

Frax Community,

Given recent conversations surrounding treasury management preempting the upcoming launch of FXBs in 2024, we wanted to formally introduce ourselves as Adapt3r Digital, the General Partner of tfBILL, our on-chain treasury bill product. We are proposing an initial maximum allocation limit of $20 million to tfBILL, in line with Centrifuge’s recent proposal.

Executive Summary

• With the passing of FIP-308, Frax will be able to onboard to a diverse set of on-chain T-Bill issuers.
• There are nuanced yet significant differences between the options today, with the logical intersection for Frax being those that can maximize for liquidity and regulatory compliance.
• tfBILL was structured for institutional scale since the underlying collateral is spot T-Bills ($700B global daily volume) rather than ETFs (<$400mn global daily volume). Tokenized ETF products will present significant frictions in liquidity and hidden fees for a balance sheet as large as Frax due to the potential slippage when FXBs are scaled (i.e. $100mn+ redemptions are not frictionless).
• tfBILL was also structured to minimize regulatory risk and thus maximize flexibility. Given our cautious approach to integrations, we are free to operate both domestically and abroad, including with FinresPBC
• MJL Capital, our direct affiliate, is also heavily aligned with Frax given our position of a long-term holder and staker of FXS in our hedge fund strategies. As such, we are open to receiving fees partially paid in FXS token.

tfBILL is a purpose-built, scalable, already live solution that allows direct access to U.S. Treasury Bill yields so that protocols can leverage all of the benefits of RWAs. Users deposit USDC into a smart contract vault, obtaining tfBILL tokens representing Limited Partner interest in a BVI-registered fund holding exclusively treasury bills. The entity, designed for bankruptcy remoteness, assures investment security with full legal recourse for tfBILL holders. Launched in September 2023, the vault currently accepts USDC deposits from KYC'd non-U.S. investors, with a Total Value Locked (TVL) of ~$8,600,00 and an estimated yield of 5.32%. We can adopt any structure that aligns with FRAX requirements/goals and have the flexibility to provide both onshore and offshore US operations. If FRAX decides to operate in the US through FinresPBC, we have the capacity to participate. Importantly, we are fully compliant and have a clean cohort of investors in our fund. No anonymous users today. tfBILL differentiates itself through compliance-focused strategies, emphasis on regulated counterparties, enhanced transparency via on-chain Net Asset Value attestations, and on-demand liquidity. Utilizing battle-tested smart contracts from TrueFi ensures robust security and operational independence. tfBILL redefines simplicity, transparency, and security in on-chain treasury instruments.

Overview

Our flagship product, the Adapt3r Short-Term U.S. Treasury Bill Fund, offers on-chain stablecoin holders 24/7, direct access to US Treasury Bill yield. Upon depositing USDC to the smart contract vault, investors are issued tfBILL tokens which represent Limited Partner interest in a BVI registered professional fund that exclusively holds treasury bills. The entity is bankruptcy remote and solely owned by the holders of tfBILL, who have full legal recourse to tfBILL’s underlying securities. The vault is built on TrueFi’s open, transparent, and battle-tested smart contracts and is conveniently offered on Archblock’s institutional-grade frontend marketplace.

The vault was deployed in September 2023 and currently accepts USDC deposits from KYC’d non-US investors. At the time of writing, the TVL of the vault is approximately $8,600,000 and offers an estimated yield of over 5%.

tfBILL was built in response to compliance and complexity concerns we continually heard from DAOs and on-chain investors about existing treasury bill offerings. Specifically, many DeFi entities and users expressed difficulty evaluating existing options due to contrived and opaque legal structures with uncertain investor recourse, hidden layers of fees, and aggressive operation in regulatory “grey areas.”

Since the beginning, the primary goal has been to build an on-chain treasury instrument that is simple, transparent, and secure for all users. Here are some of the key ways tfBILL differentiates itself:

1. Compliance-focused: A tokenized asset is only as strong as the regulatory position of its issuer. Given treasury bills are US securities, tfBILL complies with all applicable regulations (i.e. SEC Reg S), only accepting qualified non-US investors with rigorous controls in place. We are in the process of establishing a US feeder fund which will enable direct access to US investors such as Frax.
2. Simply T-Bills: tfBILL is directly backed by treasury bills purchased through and custodied by a regulated broker-dealer in the United States. The Fund does not allocate to ETFs which offer greater volatility, higher tracking error, lower liquidity, more counterparties, and higher fees. By purchasing treasuries directly, tfBILL has access to far greater liquidity with over $700 billion in average daily volume to sell/buy into versus less than $400 million for treasury ETFs like SHV.
3. Enhanced transparency: Adapt3r Digital has gone one step further than most to ensure the underlying backing of tfBILL is open and accessible to all. Everyday the third-party Fund Administrator provides Net Asset Value attestations, which are subsequently uploaded on-chain and to IPFS. These capital updates are required for fees to be taken from the vault. In every on-chain update the manager includes the Net Asset Value of the fund (and thus tfBILL tokens), the underlying positions/CUSIPs, and the source PDF that the Fund Administrator provides. This same data file is used to update our Transparency Board. Finally, the Fund is audited on an annual basis by Wolf & Co.
4. On-demand liquidity: tfBILL is mintable on-chain through Archblock’s interface, utilizing TrueFi’s smart contract architecture. This interface is open 24/7 and currently accepts USDC, but can be expanded to other stablecoins and chains with little friction.
5. Battle-tested smart contracts: Single points of failure are the hidden risk embedded in every tokenized asset. By using TrueFi’s battle-tested smart contracts, which have facilitated almost $2 billion in lending volume to date, tfBILL has achieved two significant milestones that differentiate us from all other players in this space: 1) offering a new tokenized asset without compromising on the smart contract level and 2) offering enhanced protections and controls by separating the front-end, blockchain, and d’App from the manager of the product itself. Unlike other treasury bill primitives, TrueFi’s underlying infrastructure is independent from Adapt3r’s operations and is always on.

Flow of Funds Diagram

In conclusion

Ultimately, Adapt3r Digital and our affiliate, MJL Capital, are deeply aligned with the Frax mission and purpose. We want to see the project succeed. If you are looking to learn more about tfBILL check out our documentation or reach out via DM or email.

Pricing and payment

The pricing for this proposal is structured to streamline fees. The potential usage of FXS as also helps to align incentives towards long-term interests versus short-term benefits. The fee structure is as follows:

Portfolio Fee	0.30% p.a. on assets in tfBILL up to $50M, 0.2% $50-100M, 0.1% >$100M	0.30% is paid on an ongoing basis to Adapt3r, payable in stablecoins and/or FXS tokens. The difference between 0.30% and the effective fee is rebated from Adapt3r back to Frax on an ongoing basis.
Protocol Fee	0.20%	This fee is currently on holiday and not applicable to Frax’s potential investment.

Voting

For: Support for onboarding the Frax protocol to Adapt3r Digital with mentioned fees and an initial maximum allocation limit of $20 million to tfBILL.

Against: Do nothing.