CETES is backed by reserves held by Etherfuse. The reserves are exclusively invested in short term bonds issued by the Federal Government of Mexico, called Certificados de la Tesorería de la Federación. CETES is fully collateralized with an additional collateral buffer supporting instant transactions.
The bonds underlying CETES are issued at a discount as zero-coupon bonds. They mature weekly on Thursdays or the next business day. They are sold by Mexico’s Ministry of Finance via government auctions. For users who denominate their assets in MXN, the bonds offer a risk-free return.
For other users, the bonds carry the credit risk of lending to the Federal Government of Mexico and the inflation risk of holding assets denominated in MXN. They carry low duration risk with a weekly maturity and trade in a highly liquid secondary market within Mexico.
Etherfuse publicly discloses the custodians that hold reserves backing CETES. All of the custodians are regulated companies based in reputable jurisdictions.
The majority of reserves are held by Banco Bilbao Vizcaya Argentaria, better known as BBVA Mexico. This is the largest bank in Mexico by total assets, and the largest subsidiary of Spanish headquartered BBVA. Other custodians for CETES include Kuspit Casa de Bolsa (brokerage firm) and Grupo Financiero Actinver (full service financial services).
All custodians are registered in Mexico and regulated by Comisión Nacional Bancaria y de Valores (CNBV).
Client assets are segregated from the Etherfuse corporate treasury but may not be bankruptcy remote.
Etherfuse is composed of two entities that share ownership and management, called Etherfuse MX and Etherfuse Liquid. The former issues tokens like CETES and holds the reserves backing them, while the latter provides operational services like compliance and marketing. Net assets owned by Etherfuse MX are considered as reserves backing all tokens issued, including CETES.
According to the customer agreement, client assets are held “in administration” by Etherfuse Liquid and transferred to Etherfuse MX. Here, “in administration” is a contractual term used to state that Etherfuse Liquid accepts client assets as a custodian or administrator, without taking ownership. Etherfuse MX is explicitly restricted to using client assets for buying the short-term bonds that back tokens like CETES.
According to the attestations issued by BHR Mexico, transactions between the two entities are executed according to specific transfer rules and policies. All transactions related to minting or redeeming CETES take place in segregated accounts to manage the underlying reserves. This structure sufficiently indicates operational asset segregation.
According to a legal opinion issued by Legal Paradox, a Mexican law firm retained by Etherfuse, clients can file a claim for “separation of assets” from the rest of the company, if the issuer goes bankrupt. But the legal opinion also cites a precedent from a Mexican court which ruled that such claims can fail if the assets are fungible. In that scenario, clients would be deemed common creditors of Etherfuse.
Typically, a trust structure is used to protect client assets from bankruptcy. Even as Etherfuse does not have a trust, even the use of a trust does not guarantee bankruptcy remoteness in Mexico. According to a decision in the Amparo Directo 188/2021 case, the Mexican court ruled that transfer of assets into a trust was revocable, effectively allowing the assets to become a part of the bankruptcy estate. This ruling highlights the legal uncertainty, indicating that even properly structured trusts may not be enough to protect client assets from bankruptcy.
The requirements to establish bankruptcy remoteness vary for each jurisdiction. While many required elements are present in Etherfuse, there remains a lack of legal precedent and regulatory clarity.