America's Tokenized Future is Here
In December 2021, former SEC Chairman Jay Clayton authored a Wall Street Journal opinion editorial expressing the need for the United States of America to adopt blockchain technology to maintain its global economic leadership position. Mr. Clayton asserted that while advancements in the digital asset space have been impactful over the last decade, further innovation in financial services and the U.S. Treasury is essential. Mr. Clayton affirms that meaningful action by the United States is in the country's best interest; failure to act with urgency could jeopardize America’s role as the dominant global force.
Mr. Clayton’s sentiments mirror Arca’s vision for the future of finance. Similarly, we believe that adopting blockchain technology will help strengthen our financial system and reinforce the U.S. as the center for innovation and technological development. Our country’s modern financial system provides a robust foundation built from centuries of wisdom and practice. However, the infrastructure—which connects participants who are continuously interacting—needs an upgrade. Arguably, the financial system has failed to keep up with the technological revolution that has fundamentally changed how people communicate, transact, and access information. There have been attempts at modernizing the U.S. financial system, but the decades-long practice of improvising with cobbled-together solutions has, in our view, proved inadequate. Now, the advent of blockchain technology combined with responsible innovation provides the U.S. an opportunity to work in unison with reputable and experienced financial innovators to create the next generation of financial rails.
The most significant challenges for those interacting with the current financial system stem from issues of transferability and time. As societies, technologies, and industries race forward, they will not wait for archaic systems to keep up. The U.S. Treasury market, specifically, is the linchpin of the global financial system—it is a government reserve that underpins the connectivity and stability for most of the world's financial interoperability. We believe tokenized U.S. Treasuries that can be transferred 24/7/365 in a peer-to-peer fashion on the blockchain can help solve some of the inefficiencies of our financial system. This is a challenging endeavor that I believe Arca is well-positioned to address—we have already experimented with blockchain to create a public offering that aims to tokenize the investment of U.S. Treasuries.
The mission of Arca, and the cornerstone of Mr. Clayton’s op-ed, is to use the transformative power of blockchain and digital assets to build financial infrastructure, networks, and products for the digital age. In 2018, due to the primacy of U.S. Treasuries in global markets, Arca studied how blockchain technology could improve their transferability. Our thorough analysis of the existing financial landscape combined with lengthy consultation with regulatory counsel led to the first tokenization of the shares of a fund registered under the Investment Company Act of 1940 (the “'40 Act”) , which predominantly holds U.S. Treasuries: the Arca U.S. Treasury Fund. It is the first and only ’40 Act-registered closed-end fund that issues its shares as digital asset securities. At present, as adoption and knowledge of the digital asset ecosystem have expanded, now is the time to heed Mr. Clayton's suggested initiative of tokenizing U.S. Treasuries directly.
The Arca U.S. Treasury Fund took two years of work and collaboration with financial institutions, service and technology providers, market participants, and others to create custom workflows and processes for blockchain-based solutions that fit within the existing regulatory framework. The development of the only ‘40 Act Fund to integrate a blockchain-enabled solution into the existing financial infrastructure produced learnings that could be advantageous to the industry; we would be remiss not to share our findings.
As the creators of the Arca U.S. Treasury Fund, I believe Arca is uniquely positioned to lend our experience to help modernize the U.S. financial infrastructure. Our comprehensive undertaking produced invaluable learnings that stand to be beneficial in the pursuit of a tokenized U.S. Treasuries market. We believe in the power of blockchain technology. We are eager to share our knowledge in a united effort to accelerate the "public-private partnership" that Mr. Clayton asserts is essential to winning the global currency reserve race. For the betterment of the entire financial system, Arca will pledge our resources to support a transparent, concerted process to implement a solution that will help progress the U.S. Treasury market and encourage a blockchain-powered future.
1. Clayton, Jay. “America's Future Depends on the Blockchain.” Wall Street Journal, 16 December 2021, https://www.wsj.com/articles/america-future-depends-on-blockchain-crypto-bitcoin-payments-transfers-federal-reserve-11639668586?st=e9alovnyb1f5o0j&reflink=desktopwebshare_twitter. Accessed 16 December 2021.