Part 1. Applicant information
Name: DigiFT
Address (Headquarters): 7 STRAITS VIEW, #05-01 MARINA ONE EAST TOWER
City, State, Postal Code: Singapore, 018936
Country: Singapore
Website: https://www.digift.sg
Primary contact Name: Ryan Chen
Title: Head of innovation
Country: Singapore
Email, Telegram, Forum, & other methods of contact: ryan.chen@digift.com.sg
Telegram: @ciz233
Forum: @ryanciz
Part 2. Key Information
We have three kinds of products for Arbitrum’s consideration. All of them are stable, liquid and yield earning products, and are tokens on public blockchain, issued by DigiFT, a Singapore licensed exchange. The three tokens are:
1. DrUST: a series of security tokens representing beneficial interest in single US Treasury Bill with different tenors;
2. DMMF: security tokens representing direct beneficial interest of a USD money market fund, managed by an established licensed fund manager;
3. HYDB: a series of security tokens representing beneficial interest in high yield bank bond, the first token is a perpetual bank bond issued by a regulated financial institution
Product sample
Product 1: DrUST0624
Underlying: US Treasury 0% 25/06/2024 (ISIN: US912797KG11)
Expected Yield: ~5.4% p.a.
Expected Maturity: June 25, 2024
Minimum/Maximum transaction size: minimum: 1,000 USD or USDC, No Maximum
Current AUM for product: 2,415,208 USD
Current AUM for underlying: 60.297B USD
Volume of Transactions LTM: 9
Source of First-Loss Capital: N/A
Note that we are also able to issue tbill token with different maturity date, for example, 1/3/5 year treasury bond, if Arbitrum DAO is more interested in that. As the US interest rate is high at the moment, we do understand that some investors want to have treasury bonds with long tenure to lock the future interest rate, and we are able to provide such kind of products to Arbitrum communities.
Product 2: DMMF01
Underlying: USD Money Market Fund managed by a established licensed fund manager
Expected Yield: ~5.15% p.a.
Expected Maturity: N/A, perpetual product
Minimum/Maximum transaction size: minimum 2000 USD or USDC, No Maximum
Current AUM for product: 551,236 USD
Current AUM for underlying: 349.59 M USD (as of April 4th, 2024)
Volume of Transactions LTM: 4
Source of First-Loss Capital: N/A
Product 3: HYDB1025
Underlying: Perpetual bank bond issued by a regulated financial institution
Expected Yield: ~ 11.25% p.a.
Next call date: Oct 30th, 2025
Minimum/Maximum transaction size: minimum 2000 USD or USDC, No Maximum
Current AUM for product: newly issued
Current AUM for issuer: 1.25B USD
Volume of Transactions LTM: newly issued
Source of First-Loss Capital: N/A
Above data as of April 30th
Part 3. Basics and background
Before answering the question, here is a brief of DigiFT:
DigiFT is the first regulated on-chain exchange, approved as a Recognized Market Operator with a Capital Markets Services license by the Monetary Authority of Singapore (MAS) since December 2023. DigiFT allows asset owners to issue blockchain-based security tokens and investors can trade with continuous liquidity via an Automated Market Maker (AMM).
At the moment, DigiFT’s smart contracts are on Ethereum and Arbitrum, and we are seeking partnership with leading Layer 2 ecosystem to better leverage efficiency of the underlying technology.
1. How will this investment improve Arbitrum’s RWA ecosystem?
Asset diversification: This is straightforward, cryptocurrencies are too volatile for treasury management which target stable and safe yields. As a regulated security token exchange, DigiFT is able to bring traditional capital markets onchain and let Arbitrum ecosystem get access to diversified high quality assets that are uncorrelated with cryptocurrencies, and meet various demand of traditional assets from the Arbitrum communities.
Institutional adoption: As a regulated financial institution, DigiFT is in constant conversation with major financial institutions and regulators. DigiFT will be an advocate with regulators and financial institutions, to draw their awareness and increase their adoption of Arbitrum.
Building a next-generation security token exchange on tier-one layer 2: This is our mission. We want to leverage Ethereum and Arbitrum’s security to build the next generation of capital markets with higher efficiency, more transparency, and less middle-layer cost. By deploying the DigiFT exchange on Arbitrum blockchain, Arbitrum communities can trade diversified capital market products directly on-chain with instant settlement.
2.Identify key management personnel and individual experience. Also include third parties utilized for managing assets and their qualifications.
Key management personnel, here’s also team intro page
- Henry Zhang, Chief Executive Officer
Henry is a experienced banker with over 30 years in the industry. His experience including:
Managing Director and Deputy CEO of China, Citi Bank
Managing Director and Deputy CEO of China, Standard Chartered Bank
CEO of Greater China, Group Executive Vice President, East West Bank
He was also in Advanced Management program of Harvard University.
- George Jin, Chief Operating Officer
George is a skilled product manager with a background in operations. His career includes pivotal roles at Citi Bank, Bank of America, and East West Bank where he served as the Head of Customer Solutions for Greater China and Director Of GTS Regional Product Manager at Bank of America.
- Kevin Loo, Chief Executive Officer (HK)
Kevin is a Crypto-advocate since 2017, with 20 years of experience in fixed income asset management at BNP, Pimco and Fidelity.
- Fisher Fu, Chief Architect
Former architect at a leading Stock Exchange, blockchain and smart contract expert
- Paul Wang, Chief Technology Officer
20 years of experience in tech product development and a leading crypto exchange
- Hao Shen, Chief Development Officer
20 years of global banking experience, including senior roles at Citi, HSBC, Deutsche Bank and East West Bank
- Wee Ping Lim, Chief Compliance Officer
15 years of compliance experience across diverse financial institutions
- Amos Song, Chief Business Officer
10 years of private equity real estate and wealth management experience
- Kenneth Lim, Chief Legal Officer
Former partner at Duane Morries & Selvam and Rajah& Tann, with more than 15 years of experience across M&A, investments, finance and crypto regulations.
Related third parties and service providers:
- External Audit: PwC
PwC is recognised as a global leader in professional service. DigiFT has PwC as external audit to enhance the credibility of our platform and products.
- Internal Audit: Deloitte
Deloitte is a global network of experts who provide solutions for clients and communities.
- Legal: Linklaters, Dentons
Linklaters is a global law firm with long-established history since 1838. DigiFT has Linklaters as legal advisor for our issuance structure and related legal opinions.
- USDC exchange: Circle
Circle is the issuer of USDC, building the largest, most widely used stablecoin network.
DigiFT enables investors to use both USD and USDC for subscription and redemption. Circle will convert USDC to USD and vice versa.
- Smart Contract Audit: Hacken, Slowmist and others
Hacken is a trusted blockchain security auditor, offering vaious security audits, penetration testing, bug bounty programs and other products for web3.
The SlowMist security team has audited more than 1,500 well-known smart contracts, covering public blockchain platforms such as Ethereum and blockchains based on the Ethereum Virtual Machine (EVM), EOS, Fabric, Solana, Klaytn, Aptos.
- Bank Account: DBS Singapore, East West Bank
DBS is Singapore’s leading bank, financing Singapore’s growth since 1968.
DigiFT has operational account and customer account in DBS Singapore, to seperate clients’ money aside from our own company account.
- Trustee and custodian: a Singapore licensed custodian and trust
DigiFT’s security tokens are issued under DR model (depository receipt model), which allows tokens to represent direct beneficial interest in the underlying, and this trust is trustee in this structure to hold assets on behalf of all the investors on DigiFT platform.
About DR model: https://www.digift.sg/announcements/first-rwa-depository-receipt-tokens.html
3.Describe any previous work by the entity or its officers/key contributors similar to that requested. References are encouraged.
DigiFT is the first regulated on-chain exchange, building on public blockchains. Before receiving the license, DigiFT was in the MAS Fintech Sandbox for 18 months, to ensure our system, legal structure, procedure and governance are robust and battle-tested. Media coverage of our approval in sandbox
Media press about our getting approved for full license: https://www.coindesk.com/policy/2023/12/05/singapores-digift-wins-regulatory-approvals-from-mas-after-graduating-from-sandbox/
At early 2023, DigiFT closed a USD 10.5M pre-series A funding round led by Shanda group. Other investors include HashKey Capital, Hash Global, Xin Enterprise, the co-founder of Fosun Group as well as North Beta Capital. Media press here.
4. Has your entity or its officers/key contributors been subject to an enforcement action, criminal action, or defaulted on legal or financial obligations? Please describe the circumstances if so.
No. The team members come with a clean background.
5. Describe any conflicts of interest for your entity and key personnel.
No
6. Insurance coverages, guarantees, and backstops Name of insurer or guarantor Per incident coverage Aggregate coverage 1.
N/A
7. Historical tracking error in your proposed product, or similar to that being proposed Product 2024 YTD 2023 2022 2021
The product is under DR issuance model, which is a pass-through structure. Investor of the token have direct beneficial interest in the underlying, thus there’s no tracking error.
8. Brief reason for above tracking error
N/A
9.Please describe any experience your firm has in working with decentralized organizational structures
Our team has member from both traditional finance and decentralized organization background.
We also work with DeFi protocols. We have partnership with MatrixDock STBT, Solv Finance and Tprotocol, including token listing and investment.
DigiFT exchange is currently deployed on Ethereum and we have our own cross chain function deployed on Arbitrum. Assets issued are ERC20 token which is easy to be integrated into decentralized organizational structures.
10. What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
Current TVL of DigiFT is 5.12M (data as of April 30th), source
11.How many of these assets held are present on Arbitrum One, if any?
We deploy two token contract on Arbitrum recently, we are working to grow TVL on Arbitrum at the moment.
Part 4. Plan design
1.Please describe your proposed product, including a description of the underlying assets and, if more than one asset, the proposed allocation among assets and general investment guidelines. Where appropriate, include targeted maturity mix and credit quality. Attach supplementary documents as appropriate.
On DigiFT platform, we have three kinds of products for Arbitrum to consider.
DrUST (DigiFT U.S. Treasury Token):
DrUST is a series of security tokens, each directly represents beneficial interest in the corresponding single US treasury bond.
At the moment, on DigiFT platform we have DrUST with maturity on June 25th, 2024.
Note that DigiFT is able to customize for Arbitrum DAO if DAO requires US Tbill with different tenors.
DMMF (DigiFT Money Market Fund Token):
DMMF is a series of security tokens representing a direct beneficial interest in the USD Money Market Fund, which invests in high quality short-term money market instruments and debt securities, providing liquidity and returns comparable to USD deposit rates. The first product DMMF01 is managed by an established licensed fund manager
HYDB (DigiFT High Yield Bank Bond Token):
HYDB is security tokens representing beneficial interest in a perpetual bank bond issued by regulated financial institution.
Allocation of products:
For allocation, DigiFT platform offers flexibility for Arbitrum to consider, and we can discuss about amount and percentage in detail. If Arbitrum wants a specific traditional assets in a token way and invest via crypto, we can also customize.
Supplementary documents will be sent via email.
2. Do investors have any shareholder, investor, creditor or similar rights?
All the three products are issued under a Depository Receipt (DR) model, and the token represent direct beneficial interest in the underlying.
By virtue of the DR model, token holders are investors with the right to enjoy the economic benefits of the underlying investments without being legal owners of the underlying. Token holders are not shareholders nor creditors of the issuer(s) of the tokens, but are treated as beneficial owners of the underlying assets.
3. Describe the legal and contractual structuring for your product including regulatory bodies overseeing your business and the product and identifying all legal jurisdictions interacting with your product. Attach supplementary documents as appropriate.
Legal structure description (DR model): DigiFT adopts a Depository Receipt (DR) model for its tokens. Under the DR model, each token represents a depository receipt of the underlying asset. DigiFT’s DR tokens effectively represent the assets held by the custodian on behalf of the token holders. DigiFT’s DR tokens represent direct beneficial interest to the underlying assets, allowing investors to directly enjoy the economic benefits generated by the underlying assets. These tokenized securities possess the same financial characteristics as the underlying securities.
The DR model designed by DigiFT introduces a wider range of assets onto the blockchain, thereby bringing higher settlement efficiency and transaction transparency. Below is a diagram illustrating DigiFT’s DR model: DigiFT Introduces First RWA Depository Receipt Tokens To Safeguard Investors’ Rights And Protection On-chain - The Digital Banker
Regulator: Monetary Authority Of Singapore (MAS)
Supplementary documents attached in email
4. Would Arbitrum’s assets be bankruptcy remote from your own entity and its officers/key contributors? If so, please explain the legal and contractual basis. On a confidential, non-reliance basis, provide any third party legal opinions to support the conclusions.
Yes. Under DR model, the assets are held in a trust. The trust holds assets on behalf of token holders via a bare trust structure. As described above, the DR tokens give the token holders direct beneficial interest it the underlying assets, which render them bankruptcy-remote.
Legal docs or opinions send via email.
5. How are Arbitrum’s assets protected vis-a-vis the bankruptcy of the brokerage or applicable financial institution (e.g., bank deposit insurance, securities insurance, etc.)?
The assets Arbitrum invest are held in a trust on behalf of Arbitrum.
In worst case scenario, if DigiFT goes bankrupt, token holders will still be able to get back underlying assets in the trust.
If the trust goes bankrupt, it shall not affect the underlying assets. In the legal docs we also clearly state the rights of the token holders, and the governing jurisdiction is in Singapore, a tier-1 legal system. Investors can pursue recourse in the courts of Singapore, pursuant to Singapore laws and MAS regulations.
6. Does the Issuer issue more than one asset? If so, what is the priority relationship between different asset classes?
Yes. DigiFT is a regulated exchange in Singapore. DigiFT’s licenses (CMS and RMO) allow DigiFT to issue products within certain catagories (e.g. securities).
As a platform, those assets classes are equal on DigiFT. Via the DR model, all the tokens’ underlying are hold in a trust structure.
7. Provide a detailed cash flow diagram that shows the flow of funds from ARB/Fiat conversion, investment in underlying asset, payment of expenses, sale of underlying asset, and repayment (Fiat/ARB conversion), including the counterparties and legal jurisdictions involved.
On DigiFT platform we accept both USD (fiat) and USDC. In this case we would prefer Arbitrum DAO to subscribe via USDC. If we receive ARB, we prefer not to convert ARB and USDC by ourselves, we might need to find a market maker for execution which might take extra time.
The flow shall be like flowchart below.
For compliance issues, some of the information can not be disclosed to public. We will attach supplemental documents in the email.
8. Describe anticipated tax consequences (if any) in transacting on the underlying and/or receipt of yield.
As DigiFT is a Singapore-incorporated company, the tax consequences described herein relate to Singapore tax residents. Non-Singapore tax residents must be considered on a case-by-case basis.
Income derived by the relevant Singapore tax resident tokenholders is expected to be treated as retaining its underlying character for Singapore income tax purposes. This means if the underlying asset represented by the tokens is debt securities, the distributions from the tokens will be treated as interest income. Similarly, if the underlying asset represented by the tokens is shares, the distributions from the tokens will be treated as dividends or capital gains and taxed accordingly.
Non-Singapore tax residents will be taxed according to their tax domiciled country’s tax laws
9. Describe the process and expected timeline for liquidation of assets, if given instructions to do so by Arbitrum governance.
Redemption process also in the flow chart above.
Given instruction from Arbitrum, we are able to process liquidation of assets:
DrUST: T+3
DMMF: T+2
HYDB: T+4
10.What amount of first-loss equity will Sponsor provide to ensure over-collateralization, how is the first-loss equity denominated, and what is the source of capital?
Not applicable. Under the DR model, tokens are structured as a pass-through to give tokenholders direct beneficial interest in the underlying assets. The tokens do not sit on the balance sheet of DigiFT.
11.Describe the liquidity and stability of the proposed underlying assets, including anticipated settlement times from the sale of the underlying to the repayment of ARB.
As mentioned in previous question, we would like to take USDC instead of ARB. If take ARB we are also able to deal with, but might take extra efforts.
For DrUST: repayment in USDC takes T+3. DigiFT will sell the underlying which is single US treasury bill in the market. The liquidity of Single US treausry bill is enough to execute a trade of a billion-USD.
For DMMF: repayment in USDC take T+2. At redemption, DigiFT will redeem the MMF with fund manager. The fund is able to redemption T+2 without cap.
For HYDB: repayment in USDC takes T+4. At redemption, DigiFT will sell the underlying in the market. The liquidity of the bank bond we choose is good enough for execute a trade of several million dollars with stable price.
12.If relying on the blockchain for any of the transactional flows, please describe any blockchain derived risks and mitigations.
Below are some of the risks might have during the flows. Note DigiFT’s smart contracts are on Arbitrum, and underlying assets are safely held off-chain via a trust structure.
- Blockchain derived risks
- After deploy our smart contract on Arbitrum, all the on-chain process will be completed on Arbitrum, there might be risk that Arbitrum cease function.
- For RWA tokens, assets are custodied off-chain, while all the transaction histories are onchain verifiable. In this case, still safe.
- Smart contract risk on DigiFT exchange
- DigiFT has smart contract audit from leading audit firms. Meanwhile real world assets are custodied offchain with a trust structure, token representing owner rights are in investors’ own wallet.
- Leak of wallet.
- On DigiFT’s platform, asset tokens are only allowed to transfer within whitelisted address, and DigiFT has control over the tokens. In worst cases, Arbitrum DAO can recover via an off-chain process.
13.Does the product rely on any derivative product (swaps,OTC agreements)?
No
14.List all the third party counterparties linked to your assets including and not restricted to prime broker if any, custodian, reporting agent, banks for derivatives or loans and provide primary contact details for the third party counterparties
Related parties are included in part 3. No derivatives nor loans are related to our products at the moment.
15.Can you explain how is risk management (inv and operational) being done? Can you provide a copy of your risk management policy?
Operational risk management is part of the ERM (Enterprise Risk Management), as a regulated exchange, DigiFT has a comperhensive risk management policy, based on Principles and Guidelines of ISO 31000 and COSO ERM Integrated Framework. The overall governance stucture includes different roles with respective responsibilities. For example, we have board which has overall responsibilities of the governance of risk, risk oversight committee in which members are required to have risk management related skills and experience, and audit committee which should engage the internal auditor to periodically review the adequacy and effectiveness of risk management oversight structure and processes.
Risk management policy manual is attached in email.
Part 5. Performance reporting
1.What are your proposed performance benchmarks? If this is substantially different from the underlying assets, please explain why.
The above DigiFT’s products are issued via DR model which is a pass through structure, thus the performance will be no difference from the underlying assets.
For all three products, Arbitrum can always check performance via related website, or get price data from DigiFT platform. For compliance issues, we attach factsheet in the email with detailed information about underlying assets.
2.Describe the content, format, preparation process, and cadence of performance reports. This should include proof of reserves, if appropriate. Please include a sample report.
The performance of the products are the same as the underlying. DigiFT will provide contract note and account statement for investors. We also have daily proof-of-reserves on IPFS.
3.Who provides the performance reports in respect of the underlying assets?
DigiFT will provide performance information on website. Also, the tokens represent direct beneficial interest of the underlying assets, investors can directly get information about the underlying assets in public website like Bloomburg.
4.Describe any formal audit process and timing of such audits.
Internet Audit:Deloitte
External Audit: PwC
2024 External Audit will be completed by end of May 2024.
Part 6. Pricing
1.Provide a copy of your standard contract, or one similar to what is being proposed here.
We have contract note and account statement for our investors. Samples are attached in email.
2.Fee summary: Inclusive of the full scope of services requested. Product Fee schedule If asset based Fee calculation for our plan if asset based Annual fee if flat fee Any other fees (including redemption or minting fees)
Detail fee schedule please check factsheets attached in email. We waive subscription fee at the moment for Arbitrum. Only redemption fees are applied, which is 0.02% - 0.2%, depending on products.
3. Describe frequency of fee payment and its position vis-a-vis payment priority compared with other expenses (i.e., cash waterfall)
At the moment we only have subscription and redemption fee, which is one-off. Even for perpetual products like MMF, the fee structure is similar. Details can be found in factsheet attached in email.
Part 7. Smart Contract/Architecture
1.How many audits have you had and name of auditors? Please provide a copy of reports.
We’ve been through nine audits. Auditors include Hacken, Slowmist and others. Major audit reports will attach in the email.
2.Is the project permissioned? If so how are you managing user identities? Any blacklisting/whitelisting features?
Yes. On DigiFT platform, investors need to pass a KYC procedure and bind wallet for AML purpose. Those tokens mentioned above have both blacklisting and whitelisting features.
3.Is the product present on several chains? Are there any cross chain interactions?
Yes. DMMF and HYBD are live on both Arbitrum and Ethereum with cross-chain function.
4.Are the RWA tokens being used in any other protocols? Please describe the various components of the ecosystem
Not yet at the moment.
5. How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?
As a regulated financial institution, DigiFT is responsible to manage the system, which is a set of smart contract on Ethereum and Arbitrum, as well as all the systems related to the smart contract.
DigiFT’s assets origination process, and part of subscrption and redemption processes are happened offchain, requiring trust from users for that DigiFT will act for the best interests on behalf of users.
As a regulated exchange, DigiFT has strict internal control, robust legal structure and comperhensive risk management policies to earn trust from investors.
6. Is there any custom logic required for your RWA token? If so please give any details.
N/A. Arbitrum will be a client on DigiFT platform, using an entity for onboarding purpose. The RWA token is ERC20 token standard with whitelist function and several control functions, and is able to integrate with other DeFi platform just as other standrad ERC20 tokens.
Part 8. Supplementary
Please attach any further information or documents you feel would help the screening committee or ARB tokenholders make an informed decision.
Supplementary materials will be include in email.