All you need to know about OpenEden

Introduction

With the prolonged bear market in the cryptocurrency market, combined with the Federal Reserve’s interest rate hike policy, the Total Value Locked (TVL) in the DeFi sector has shrunk significantly. The outflow of market funds has led to a contraction in market capitalization, and idle assets in the market continue to drive new narratives for development. As a result, market attention has shifted to the vast traditional financial market - Real World Assets (RWA), which have a value in the trillions. The aim is to transfer off-chain assets to on-chain, thus initiating the narrative of RWAs. DeFi blue-chip protocols such as MakerDAO have already introduced RWA-related business, and the founder of Compound has also embarked on a second venture by establishing an RWA company. Due to the user base and strong liquidity of these leading protocols, they have a certain first-mover advantage, making the competition in the RWA track more intense. OpenEden is an RWA token investment platform that brings US Treasury bond yields to investors with low-risk preference This article focuses on the logic behind OpenEden’s product, T-Bill Vault, providing a detailed explanation and analyzing the current development status of the track.

What is OpenEden?

OpenEden is an RWA token investment platform based in Singapore that issues national debt tokens, providing exposure to US Treasury bonds. The protocol was established in December of 2022 by former Gemini executives. In April of 2023, the T-Bill Vault product was officially launched, along with the establishment of a reserve mechanism to reduce investors’ liquidity risk. The project has not yet issued tokens and only received a 5 million USDC investment from the UXD Protocol in May 2023, with no further funding from any other parties.

T-Bill Vault

OpenEden provides investors with exposure to short-term US Treasury bonds through the establishment of the T-Bill Vault. TBILL is an ERC-20 compliant RWA (Real World Asset) token issued by the platform, representing the tokenization of real-world assets. Each TBILL is pegged to one US dollar, and its yield varies with the fluctuation of short-term US Treasury bonds. TBILL tokens can only be minted and redeemed by users who have completed the KYC verification process and have been fully whitelisted, through the T-Bill Vault product.

The T-Bill Vault is a smart contract launched by the protocol that supports USDC and dollar-denominated assets for the equivalent minting and redemption of TBILL. The T-Bill Vault introduces an on-chain USDC reserve mechanism, where the on-chain USDC reserve ratio is a maximum of 5% of the total asset value when funds are abundant. This reserve is used for redemption services, providing immediate liquidity for existing investors within a short period of time. Any investor can automatically redeem their tokens within 7*24 hours. When the reserve is insufficient, investors need to wait for at least 2 business days for the custodian bank to sell the Treasury bond assets. OpenEden has also introduced custodian bank credit services, where the custodian bank advances redemption funds, which are recorded as loans by OpenEden and repaid after the sale of the Treasury bonds. This strategy reduces the redemption time by 1 business day, significantly lowering the users’ time costs.

Due to the reserve requirement rate being at most 5%, it means that the target utilization rate of Vault is at least 95%. When the actual utilization rate exceeds the target utilization rate, the Treasury bonds in the custody account will be sold and exchanged for USDC; conversely, the reserve will be used to purchase Treasury bonds. The setting of the target utilization rate is adjusted by the team based on the actual situation.

Operating Logic

Users are required to undergo KYC (Know Your Customer) and KYT (Know Your Transaction) verification through OpenEden. Additionally, they must qualify as “Professional Investors’’ as defined under the British Virgin Islands Securities and Investment Business Act 2010 (“SIBA”) and as “Accredited Investors” within the meaning of Rule 501(a) of Regulation D under the U.S. Securities Act. These qualifications are necessary to purchase TBILL. Investors must have assets worth $1 million to meet the requirements. If the user’s verification is successful, the team will add their wallet address to the whitelist on the blockchain and notify the KYC investor via email.

Image source: https://docs.openeden.com/treasury-bills-vault/investor-onboarding

After KYC verification, investors deposit USDC into Coinbase PRIME (the initial deposit of USDC must be at least 1000), and then as token issuers, they purchase assets from fund managers and hand them over to offline custodians for custody. At the same time, the locked TBILL tokens will also be sent to the investor’s whitelist wallet, completing the purchase process.

Image source: https://docs.openeden.com/treasury-bills-vault/product-structuring

The redemption process is the opposite of the purchase process. Investors need to submit a redemption request to OpenEden, and then OpenEden will sell the corresponding government bonds to the fund management company and return USDC to the investor’s wallet. The entire process takes about two working days. In addition, under special circumstances and sufficient reserves, investors can directly convert and receive funds at any time.

In terms of transaction fees, investors need to pay a fee of 0.05% of the position size or $50 (whichever is greater). The asset management fee is accumulated on a daily basis, up to a maximum of 30% of the position.

Compliance and Transparency

Compliance is one of the key issues for RWA sovereign bond agreements. Having proper regulatory oversight ensures the compliance of the agreement’s business operations and helps investors reduce legal and regulatory risks. OpenEden has two subsidiary companies. One is OpenEden Cayman Ltd, a Special Purpose Vehicle (SPV) entity registered in the Cayman Islands, primarily responsible for asset bankruptcy isolation. If OpenEden faces bankruptcy, the government bond assets purchased by users are held under the SPV’s name, allowing OpenEden to still proceed with redemption and liquidation. The other company is OpenEden Labs Pte Ltd, which consists of OpenEden’s core team, front-end developers, and smart contract developers.

To increase transparency, OpenEden publishes monthly asset reports and audit reports. The audit reports are conducted by TJ Assurance Partners (TJA). Users can view them on the official website. As the transparency of third-party custodians is relatively low off-chain, OpenEden also plans to integrate the Proof of Reserves (PoR) system from Chainlink to provide real-time monitoring off-chain and implement data on-chain. This work is currently in progress.

Image source: https://docs.openeden.com/treasury-bills-vault/investor-onboarding

Current Development

With the start of the RWA narrative, the lock-up volume of OpenEden has been steadily increasing. In just one month since its launch in May, the Total Value Locked (TVL) has grown from 0 to $13 million. Due to the overall lack of market supply and bearish sentiment, the lock-up volume has not seen any growth since July last year. However, with the recent market recovery, the TVL has quickly increased again, reaching approximately $25 million.

Image source: https://defillama.com/protocol/openeden-t-bills

The current RWA market has a relatively low stock and a severe phenomenon of product homogeneity. OpenEden’s main competitor, Matrixdock, also comes from Singapore. Founded in 2023, Matrixdock is an RWA asset management platform that has launched STBT products with a current TVL of approximately 90 million US dollars. The project has received investment from Paradigm, thus surpassing OpenEden in terms of team background, collaborative institutions, etc.

Conclusion

OpenEden’s T-Bill Vault product is an RWA investment platform that provides users with US Treasury bond yields. The product mechanism is well-designed and includes a reserve mechanism to provide users with quick liquidity. The reserve ratio is controlled by the team. The team has good control over legal compliance and CeFi risks, and also discloses corresponding audit reports every month. They plan to integrate the Chainlink PoR system in the future. However, compared to other RWA protocols, OpenEden has not been invested in by well-known investors and has fewer offline cooperative structures, resulting in lower exposure and some competitive pressure.