US Treasury Bill Yield, Now On-Chain

Why Should Treasury Bill Yield Be Available On-Chain?

Opportunity Cost In A New Money Policy Regime

The U.S. Federal Reserve's aggressive interest rate hikes in 2022 and 2023, elevating US Treasury Bill yields to around 5%, led to a broad sell-off in equities, bonds, and cryptocurrencies. This risk aversion impacted DeFi, with Total Value Locked declining by over 75% from its 2022 peak. Major DeFi platforms like Aave and Compound saw lending returns plummet to near 1%.
With short-term rates at their highest levels since 2007, on-chain investors face a significant opportunity cost. Investors can access a high credit quality product, capturing a significant portion of the effective federal funds rate of the U.S., via the tfBILL Fund. As of June 30, 2023, the effective federal funds rate was 5.08%.

Capital Allocation in a Volatile Landscape

Managing substantial capital necessitates strategic allocation. While market volatility demands stability and liquidity, solely relying on stablecoins can erode purchasing power due to inflation. Earning even a 5% return on a $10 million investment translates to $500K, potentially extending a startup's operational runway in a challenging funding environment.

Unsustainable Incumbent DeFi Yield

The past years' DeFi yield farming trend, characterized by investors chasing high yields across protocols, was largely unsustainable. Many protocols had large or infinite token supplies with questionable utility. Their high reward rates, tied to their tokens' market value, collapsed during the 2022 market downturn. Market participants are now focused on sustainable, low-risk yield opportunities, especially those with stable and compliant processes.

Risks in DeFi Credit Offerings

Under-collateralized lending protocols, whether tied to real-world or crypto assets, are fraught with risks like credit risk, legal intricacies, and heavy reliance on third-party due diligence. Many such protocols operate outside regulatory oversight. The modest returns they offer over the U.S. risk-free rate present a suboptimal risk-adjusted return, especially at this point in the market cycle.

Idle Stablecoin Supply Remains High

Despite significant events like the collapses of 3AC, Terra, and FTX, the overall stablecoin supply has been stable. However, many stablecoin holders have moved their assets to perceived safe havens, leading to a large unallocated stablecoin supply and missed opportunities for these holders.

Advantages of On-Chain T-Bill Exposure

The current DeFi environment presents an opportunity for crypto investors seeking a transparent and safe return on their stablecoin holdings. The tfBILL Vault offers on-chain T-Bill access, characterized by:
  • The deepest and most liquid global market (daily trades in the Treasury market exceeds $100 billion).
  • Short-term maturity averaging under 6 months.
With the Federal Funds rate projected to remain high, T-Bills offer a compelling option for Web3 investors. The Vault's DeFi interface allows for a seamless USDC investment process. Benefits include:
  • 24/7 On-Demand Settlement: On-chain transactions offer on-demand fast settlement, compared to traditional finance's multi-day processes.
  • Real-time Transparency: Archblock's frontend website, which plugs into the TrueFi smart contract interface where all ADAPT I LP capital activity occurs, provides investors with real-time visibility into the Fund's holdings, yield generation, fees and expenses, and ongoing maturity profile.
  • Audited & Transparent: Regular reports and attestations are provided, adhering to recognized financial standards. Additionally, the fund plans to integrate daily attestations such as Chainlink's Proof of Reserve offering, which will ensure cryptographic verification of tfBILL tokens' backing.
  • Self-Custody: Investors maintain control over their tfBILL tokens, representing their stake in the underlying assets.
  • Low Default Risk: Treasury Bills are backed by the U.S. Federal Government's full faith and credit.
  • Partnerships with Leading Institutions: Collaborations with top-tier banks, legal firms, and other entities ensure a robust operational framework.
  • Regulatory Compliance: The Token Issuer operates under recognized regulatory frameworks both in the United States and abroad.
  • Transferability & Composability: Upcoming features will aim to enhance token interoperability across protocols and allow for a range of new products and use cases for tfBILL in DeFi.