A group of digital asset companies announced Tuesday the planned release of Lynq, a real-time settlement network powered by a tokenized Treasury fund that pays out daily yield to institutional clients.
Arca Labs, Tassat Group, tZERO Group, Avalanche, B2C2, Galaxy Digital, U.S. Bank and Wintermute all collaborated on the project. Lynq will use Tassat's patent-pending Yield-in-Transit algorithm to calculate interest earned on holdings in increments of five-seconds and pay yield out daily.
The tokenized Treasury fund is custodied at a special purpose broker-dealer facilitated by tZERO, meaning it is authorized by the SEC and FINRA to handle and hold digital asset securities on behalf of a client. Lynq is slated to go live in the second quarter of 2025.
Arca,
"Lynq is an end-to-end settlement utility built by the industry, for the industry," the trio said. "Our goal is to provide a quality settlement service that can meet the liquidity, scale, and security needs of our digital asset clients, while maximizing capital efficiency for all network participants."
"The growth in the adoption rate, the notional value and the sheer number of digital asset transactions have outpaced the ability of traditional market solutions to process them efficiently," Jerald David, president at Arca Labs and leader of the consortium, told American Banker.
David said the lack of dedicated banking rails for digital assets and the changing regulatory landscape provided additional challenges.
"This creates a situation where institutional clients have had to accept fragmented settlement processes, which are often slow, only available during nine-to-five weekday hours, and introduce unnecessary risks like system outages and errors," David said. "To solve this, we created the first institutional-grade digital asset settlement network that enables real-time settlement and mitigates counterparty risk."
David said tZERO's licenses and Arca's registered investment advisor and Delaware trust makes regulatory compliance a "critical differentiator" for Lynq.
"Additionally, segregated accounts, transparent proof of reserves and our rigorous KYC/AML processes enhance security and trust, mitigating risks associated with bad actors and blacklisted assets," David said. "This streamlined settlement process, coupled with our customizable use cases, allows us to provide institutional-grade services, bridging the gap between traditional finance and digital assets."
In an announcement release, the group said it was the product of more than a year of research, development and, crucially, came after the creation of Arca's U.S. Treasury Fund TFND, a tokenized Treasury fund which issues shares as digital asset securities — one of the first digital funds to do so. Tokenized Treasuries provide investors with an opportunity to put idle cash on blockchains and earn a yield, in the same way they can with money market funds.
The market value of tokenized U.S. Treasury securities exceeded $5 billion for the first time ever in late March, according to data from rwa.xyz. The asset class grew by over $1 billion in two weeks last month largely led by investments into
B2C2,
"This consortia approach among market participants strengthens the network through greater industry adoption," David told American Banker. "As we continue to expand our reach among institutional investors, Lynq's value proposition will only increase as we offer a solution for settlement of digital asset trades to a larger segment of the market."
