USDM is fully backed by US treasury bills via direct holdings, and tokenized funds like BUIDL by BlackRock and USTB by Superstate. Collateral also includes stablecoins such as USDC and bank deposits.
Mountain Protocol’s investment mandate requires 99.5% of total collateral to be invested in bank deposits, and US treasury bills or notes. This includes equivalent assets like repurchase agreements secured by the bills, and money market funds or ETFs that invest in the bills.
US treasury bills held as collateral have a dollar-weighted average maturity of less than 60 days. They present some of the lowest credit and duration risks, while trading in a highly liquid secondary market.
Historically, 94% of collateral has been invested in US treasury bills. Since July 2024, a significant portion of this exposure has shifted from direct holdings to tokenized funds like BUIDL and USTB. We look through the tokenized wrapper and consider the ultimate make-up of the collateral.
BUIDL by BlackRock is a tokenized fund that invests in US treasury bills and equivalent assets. The fund only buys floating rate securities maturing within 3 months of purchase. Investors can redeem BUIDL instantly at any time via a smart-contract controlled pool of USDC established by Circle.
USTB by Superstate is a tokenized fund that also invests in US treasury bills and equivalent assets. As per the latest attestation (Aug 2024), the fund has a dollar-weighted average maturity of 34 days and yield of 5.33%. On market days, investors can redeem USTB and receive funds on the same day.
Historically, the remaining 6% of collateral has been invested in stablecoins like USDC and bank deposits. These holdings are largely used to manage liquidity and facilitate daily issuance and redemption. USDC is one of the safest stablecoins with a Bluechip rating of B+.
Mountain Protocol does not publicly disclose the custodians that hold US treasury bills on its behalf. However, custodians are required to be pre-vetted by the BMA, as part of the issuer’s Class F license.
Collateral backing BUIDL and USDC is held by the Bank of New York Mellon, which is regulated in the US as a “systemically important financial institution” by the Federal Reserve.
Collateral backing USTB is held by UMB Bank, which is also regulated in the US by the Office of the Comptroller of the Currency. Since July 2024, a significant portion of exposure to US treasury bills has shifted from direct holdings to tokenized funds.
As per the latest attestation (Sep 2, 2024), exposure is evenly split among the two options. Shifting exposure from direct holdings (with undisclosed custodians) to tokenized funds (with disclosed custodians) provides additional transparency in custodians.
Mountain Protocol is regulated by the BMA as a Class F licensee, issued under the Digital Asset Business Act 2018 of Bermuda (DABA). Further, the BMA has released draft guidance for stablecoin issuers.
The Code of Practice for DABA 2018 recognizes the concept of “client assets” and mandates that such assets be segregated from the issuer’s corporate treasury. The BMA’s draft guidance on stablecoins supports this requirement and prohibits rehypothecation of the collateral for the issuer’s benefit.
The Code of Practice for DABA 2018 also requires the issuer to return the assets to clients, in the event of a bankruptcy or liquidation. The BMA’s draft guidance on stablecoins supports this requirement and advises issuers to obtain a legal opinion on bankruptcy remoteness from an independent law firm.
After a period of enhanced supervision, Mountain Protocol’s license in Bermuda was upgraded to Class F. This represents a vote of confidence from the BMA and reinforces the issuer’s ability to comply with regulations that mandate asset segregation and bankruptcy remoteness.
As specified in the terms of service, Mountain Protocol does not retain legal title to the assets. The issuer holds the assets in custodial accounts, the terms of which expressly state that the accounts are held for the benefit of USDM holders.