💵Tokenizing Fixed Income

Scenario: Issuing a 10-Year Treasury Note on-chain with Medici Programs

We are First National Bank, a large financial institution in New York City. We hold a significant portfolio of U.S. Treasury notes, including a specific 10-year note approaching its maturity. We see an opportunity to leverage the Solana blockchain and the Medici Programs suite for a more efficient sale.

Here's how we, First National Bank, would issue this 10-year Treasury note on the secondary market using the Medici Programs suite:

1. Preparation:

  • Tokenization with ACP: We collaborate with a trusted custodian to tokenize the ownership of the 10-year Treasury note using the Medici Asset Controller Program (ACP). The ACP ensures standardized transfer controls and transaction privacy for the tokenized note.

  • Prepare Off-Chain Regulatory Compliance: We ensure compliance with all applicable regulations regarding the issuance of digital assets and the sale of Treasury notes. This might involve working with regulatory bodies to clarify the process within the context of the Solana ecosystem.

  • Update On-Chain Information: Determine a compliant design using the Medici Program suite. In our 10-year Treasury note sale below is an example diagram of the data that we need.

2. Issuance on the Secondary Market:

  • Identity and Permissions with IRP & PEP: We leverage the Medici Identity Registry Program (IRP) to create digital identities for authorized investors on the Solana blockchain. The Policy Engine Program (PEP) enforces on-chain identity-level restrictions to ensure only qualified investors can participate in the offering.

  • Listing and Offering Details: We connect with a secondary market platform built on the Solana blockchain, or find a servicer. This platform will allow for the secure and compliant trading of tokenized assets compatible with the Medici Programs. Assuming we found a market, we list the tokenized Treasury note on the platform, specifying the offering price, minimum investment amount, and other relevant information through the platform's interface.

  • Investor Onboarding: Interested investors complete a KYC (Know Your Customer) process on the secondary market platform, which integrates with the IRP for verification. Once verified, the investor receives a digital identity on the Solana blockchain.

3. Purchase and Settlement:

  • Investor Purchase: If an investor decides to purchase the tokenized Treasury note, they use the secondary market platform to submit a buy order. The platform interacts with the smart contract and the investor's Solana wallet for the transaction. When the order is filled, the platform will execute a transfer which will check compliance and identity policies, and enforce them.

  • Settlement: The investor's digital wallet receives the token representing ownership of the Treasury note. As the program takes care of the transfer, it eliminates the need for intermediaries and streamlines the settlement process.

Benefits of using Medici Programs:

  • Quicker Settlement: The automated nature of the ACP allows for near-instantaneous settlement compared to the traditional T+2 (trade date + 2 business days) settlement in the secondary market.

  • Increased Liquidity: Listing on a dedicated Solana-based platform potentially expands the pool of interested buyers, fostering a more liquid market for the Treasury note.

  • Reduced Costs: The Medici Programs can potentially reduce transaction fees and administrative costs associated with traditional intermediaries in the secondary market.

  • Transparency and Security: Solana's blockchain technology provides a transparent and immutable record of ownership and transaction history, enhancing security and audit ability.

Important Considerations:

  • Ecosystem Adoption: The success of this approach depends on the wider adoption of the Solana blockchain and the Medici Programs suite by other financial institutions and investors.

  • Regulatory Landscape: Regulatory clarity regarding the issuance and trading of tokenized securities will be crucial for broader market acceptance.

By leveraging the Medici Programs suite on the Solana blockchain, First National Bank can potentially unlock the benefits of faster settlement, increased liquidity, and reduced costs for the sale of this 10-year Treasury note on the secondary market. However, navigating the evolving regulatory landscape and ensuring wider adoption of the ecosystem remain important considerations.

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