DISCLAIMER¹ 

Recently, a few proposals were submitted to governance that, if passed, will modify M^0’s Adopted Guidance to permit Minters to use additional structuring and asset management solutions to maintain eligible collateral within the M^0 ecosystem. To support governors, particularly during the early stages of the M^0 system, the M^0 Foundation is reviewing the most relevant proposals and offering non-binding opinions on their content.

At M^0, we look at stablecoins as transparent balance sheets. Through technological, legal, and governance innovations, we aim to empower all the best crypto-savvy asset managers to upstream appropriate assets to that balance sheet, while $M integrators and users benefit from this unparalleled level of transparency and liquidity aggregation downstream. At its core, M^0 is a protocol that connects institutions (Minters) seeking liquidity on eligible collateral, with downstream distributors and users of stablecoins. This design permits $M, and any stablecoin extending it, to be issued by multiple entities. A multi-issuer model paired with a highly stable and secure collateral base allows for a paradigm shift in how stablecoins can scale to underpin next-generation payments and finance. 

Multi-structural vs. Multi-collateral

M^0 is not a multi-collateral stablecoin infrastructure. Rather, it has a single universal and homogeneous list of eligible collateral and should be thought of as being multi-structural in nature. Any instrument, whether a fund unit or a token, is ultimately an atomic representation of a structure that allows the access, holding, and management of an asset; and the only eligible asset remains the same – short term US T-Bills. M^0’s Adopted Guidance outlines specific legal and administrative setups that can be used to custody and manage (off-chain) eligible collateral on behalf of the protocol. At this time, a certain specific set-up constituted by a combination of custody and legal ownership through a Luxemburg-based special purpose vehicle, in compliance with best-in-class securitization practices, has been approved.

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The inclusion of Superstate's USTB, as proposed to governance, would significantly improve the investment structures available for Minters in the system, even though it would not expand the collateral pool. Superstate’s combination of asset custody, asset management, and legal set-up, as well as the quality of the partners and jurisdictions involved, provide the critical properties of bankruptcy-remoteness and asset transparency required. For completeness, the current governance cycle has seen a separate proposal to extend the term of US T-Bills instruments from a maximum of 90 days to a maximum of 180 days and have them remain eligible. While this is partially related to the eligibility of Superstate, it more generally aligns with the overall M^0 strategy of progressive and conservative expansion of the collateral pool in accordance with how reference central banks are managing their balance sheets.

Superstate’s Structural Characteristics

In order to get to this point, the M^0 Foundation worked extensively with the Superstate team in order to ensure that USTB would continue to uphold M^0’s north star mandate that $M (and its future extensions) always maintains absolute transparency and no-questions-asked solvency. 

Contracts

The M^0 Foundation has analyzed the contracts relevant to Superstate’s USTB set-up, namely the Investment Management Agreement, the Declaration of Trust and Trust Agreement, the Private Placement Memorandum, and the Investment Agreement. Key observations include the following:

• The Investment Management Agreement is appropriate and meets market standards. It does not contain any original regulation, and specifies responsibility of parties previously defined in the Trust Agreement.
• The provisions in the Trust Agreement are market standard. Redeemability points have been mitigated via appropriate binding terms. Asset segregation is regulated by the Delaware Act.
• The Private Placement Memorandum is largely market standard. Specific points have been mitigated via appropriate binding terms.
• The provisions in the Investment Agreement are market standard. Redeemability characteristics have been mitigated via appropriate binding terms.

Investment Criteria

Regarding the investment criteria, the diligence process has established that it is largely in line with the criteria set out by M^0’s Adopted Guidance. Thanks to the transparency provided by Superstate’s technological set-up, cash holdings as well as holdings above 180 days (subject to approval of the 90 to 180 day extension described above) will not be accounted for as Eligible Collateral. At present, Superstate’s USTB Investment Manager maintains a portfolio of maturities of around three months maximum without any material cash holdings. A constant exchange between Minters, SPV Operator and Superstate is advisable going forward to allow for divestment or submission of governance proposals should Superstate materially change investment criteria; frequently utilize the duration between 180 and 189 days; or hold significant cash buffers.

Redemptions

In terms of redemptions, the observed rights are comparable to those of any standard market fund or note investment. Restrictions have been addressed through binding terms. Given the regulation under the Delaware Statutory Trust Act and the absence of unmitigated adverse redemption clauses, no undue hindrances in redemptions for $M (and future extensions) are to be anticipated.

Transparency

Beyond this, Superstate’s USTB Fund structuring was already high quality and its holdings were already mostly eligible as collateral. In addition, Superstate’s technological, bottom-up approach to product design, will allow M^0’s independent validation network to look through USTB’s structure and, daily, assess at a single asset level what is actually constituting the instrument, allowing the protocol to provide representative snapshots of the granular reserve composition that the ecosystem has come to appreciate on dashboard.m0.org.

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More Alternatives for Minters

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Why are all these details important? Currently, M^0 Minters have a single structure choice available to maintain eligible collateral - in addition to all of the other infrastructure they must maintain. If these proposals are approved, Minters can choose to outsource downstream structuring and asset management expertise to Superstate (and potentially other entities that can conform to similar standards in the future). This allows for Minters to compress fees maximally and for the protocol to keep the delta between the rate received on collateral and the rate paid to the protocol to an absolute minimum. Which in turn allows for distributors of $M to have a maximally competitive Earner Rate. It also allows for Minters to utilize Superstate’s liquidity relationships to better facilitate mintings and redemptions of $M (and any of its future extensions). 

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Overall the integration of USTB into our ecosystem advances M^0 towards the ultimate goal of being the infrastructure that powers money creation around the planet.

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Governance proposals referred to in this post:

• Proposal 1
• Proposal 2

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About M^0 Foundation

The M^0 Foundation focuses on facilitating the protocol's governance and ecosystem development. M^0 Foundation is established and domiciled in Switzerland, and guided by the M^0 Foundation Council.

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1 The information contained in this document is being provided solely for informational / discussion purposes and you should not construe anything contained herein to be a solicitation or an offer of sale. Nor should you construe the contents of this information as legal, tax or financial advice. To the extent the provided information contains forecasts, projections, goals, plans, and other forward-looking statements regarding M^0 Foundation’s or any other entity within the M^0 ecosystem financial position(s), results, and / or other data, you acknowledge that such forward-looking statements are based on our assumptions, estimates, outlook, and other judgments made in light of information available at the time of preparation of such statements and involve both known and unknown risks and uncertainties. Accordingly, any forecasts, plans, goals, and other statements contained herein may not be realized as described, and actual financial results, success/failure or progress of development, and other projections may differ materially from those presented herein. For sake of clarity the information provided is not intended / should not be interpreted or construed as any form of voting instruction and or recommendation in a potential governance / voting process.