Circle's 7 Star Tokenization Code: TMMF-USYC-SDYF-PYUSD
Circle’s Acquisition of Hashnote: A Deep Dive into the Largest Tokenized Money Market Fund (TMMF) and Its Risky Ecosystem
Did you see the news about Circle acquiring a company called Hashnote, which runs the “largest Tokenized Money Market Fund (TMMF) in the world”? I’m trying to make sense of it, but they don’t make it too easy. For starters, how did Circle even find out about Hashnote?
If you search for Hashnote, Google can find the address but says:
"No page information in search results."
This means the website prevented Google from creating a page description, but it didn’t actually hide the page from Google.”
Mysterious! And if you click on it:
”This website is intended for individuals and entities who are
NOT
US persons.
Are you (or the entity you are acting on behalf of) a US person under the following definition?”
Circle Internet Group, Inc., as far as I remember, has its headquarters in Boston, Massachusetts, United States. But I couldn’t find any address on their website. If you click contact us, you’re greeted with:
”For all law enforcement inquiries and subpoenas, please email subpoenas@circle.com.”
Anyway, I hope Circle didn’t click the wrong button.
After self-certifying my non-US credentials to Hashnote without reading all the fine print, I got in. The first thing you see is this:
“Institutional Crypto, Simplified.
Hashnote is a regulated asset manager providing investors with customizable digital asset exposure.”
Then there’s a link to one of their featured products, the largest tokenized MMF called USYC (US Yield Coin), which is advertised as follows:
“Earn short-term risk-free rate of returns in a tokenized structure. Get instant, open access to the digital economy.”
The plural form (“returns”) implies multiple, distinct rates, which doesn’t align with how "risk-free rate" is typically discussed in finance (e.g., tied to a benchmark like U.S. Treasury yields). A regulated asset manager should know that "rate of return" is usually singular when referring to a consistent yield or benchmark. Since they use this slogan everywhere, it’s hard to argue this is just a spelling mistake. When a regulated asset manager uses unclear or incorrect financial terminology like "risk-free rate of returns," it raises doubts about their expertise or attention to detail. In asset management, where precision and professionalism are paramount, such wording could be perceived as a red flag, as some might say.
They also say this:
“Transforming ideas into effective strategies while prioritizing minimal counterparty risks, we create cutting-edge asset management with a robust catalog shaped by investor input.”
This sounds like a bad translation from the early days of machine learning, back when you couldn’t trust computers to handle language. Or perhaps it’s a royal flush of corporate buzzword bingo.
And then there’s this gem:
“Our collaboration with banks, regulated broker-dealers, custodians, and licensed fund administrators underpins our commitment to delivering an institutional-grade service. This alliance guarantees a seamless and fortified experience for our clientele, ensuring peace of mind and security in every transaction.”
"Alliance"? Is that what we call opening a bank these days? Under banks, they list Customers Bank. No, this isn’t their customers’ bank—there’s actually a regional bank in Pennsylvania called Customers Bank. They also have a noteworthy website operating under the motto:
“Our 7-star service is backed by strength and stability.”
I’m sure it’s a fine bank, but 7 stars? That’s spectacular. In case you were wondering about hotel star ratings:
“Over the years, the term ‘7-star hotel’ has become popular in the travel industry. While there’s technically no such thing by any official standards, that’s exactly the point. Seven-star hotels take luxury to a whole new level with a level of extravagance that makes them once-in-a-lifetime experiences.”
I wish I lived in Pennsylvania to experience their 7-star checking accounts.
So let’s check the "instant access to the digital economy":
Assets Under Management: $1,210,786,688.44
Instant Redemption Capacity: $50,838,799.57
Instant access means $50 million out of $1.2 billion. So, only about 4.2% of the total assets under management are available for "instant access."
Then there is a graph covering the period from 14 September (presumably 2024) to 27 January (2025, i.e., today). It shows a number with a green arrow pointing up but without specifying what that number represents—just "up 7.25%." I thought, wow, about 7% in three months through a money market fund? They must be geniuses. But no—if you click on the line, it reveals that the returns were calculated starting 6 July 2023.
This isn’t a typical data visualization; the legend on the x-axis seems to operate in a different time zone than the numbers depicted.
But they do provide more details about their product:
“USYC is the on-chain representation of the Hashnote International Short Duration Yield Fund Ltd. (‘SDYF’).
Being invested in overnight repo means minimized market risk, duration risk, and credit risk—as good as being in a U.S. Treasury Money Market Fund, but with the transaction speed, transparency, and composability of being an ERC-20.”
Their wording, “as good as,” seems to indicate that they acknowledge this isn’t a proper MMF product. And keep up with the dynamic nomenclature: the TMMF mentioned by Circle becomes USYC, and now it’s called SDYF.
“SDYF invests primarily in reverse repo on U.S. Government-backed securities.”
Alright. And they claim their structure offers the following benefits:
“Safety
No credit intermediaries.
No loans to anyone.”
But what is a repo? It’s a collateralized loan. It’s surprising that this asset manager doesn’t seem to know that.
“The fund's cash and securities are custodied at Bank of New York Mellon and managed by experienced portfolio and liquidity managers.”
Bank of New York Mellon is a bank—one might consider them an intermediary. If the fund holds cash with BONY, the deposit arrangement bears certain parallels to providing credit to BONY. It’s not the same, but there are similarities. Don’t they know that either?
Another "strategic benefit" they highlight is this:
“All fees such as service, redemption, and custodian fees are fully disclosed.”
Ok, I thought that goes without saying.
“USYC earns short-term risk-free rate returns. The fund benefits from the transaction speed, transparency, and composability of tokenization while eliminating virtually all of the protocol, custody, regulatory, and credit risks associated with other token projects.”
The claim that USYC eliminates virtually all protocol, custody, regulatory, and credit risks is either a gross oversimplification or outright misleading. The fund’s assets are custodied at Bank of New York Mellon. This involves some degree of counterparty and credit risk, as no bank is immune to systemic shocks. Repo agreements are collateralized loans, which inherently involve counterparty credit risk, even if minimal.
Using "risk-free" while engaging in repo/reverse-repo activity and tokenized instruments is problematic. The term traditionally refers to yields like U.S. Treasury Bills, but repos introduce complexity that isn’t "risk-free."
They claim same-day or next-day (T+0/T+1) liquidity, yet in practice, there are caveats:
Redemption Delays: Redemption timelines depend on when funds arrive or when instructions are processed, contradicting the "instant redemption capacity" claim.
Trading Hours Caveat: "Please check the Trading Hours on the USYC Teller widget" undermines the idea of anytime instant redemption.
Minting and redeeming USYC is described as "atomic and instant" but later clarified to depend on the time of day and business hours:
Minting After 2 PM EST: Funds received after 2 PM are processed the next business day, which isn't "instant."
The instructions are unnecessarily convoluted:
Multiple steps like "whitelisting wallets" and "confirming with a sales representative" are not seamless or automated. This contradicts the promise of tokenization being efficient and transparent.
Investors have to "burn" USYC tokens using Etherscan or wait for a "portal (coming soon)." This introduces friction that tokenized systems are meant to eliminate.
A truly tokenized process should not require coordination with sales representatives for routine activities like minting or redemption.
Their documentation is riddled with contradictions, poorly defined processes, and misleading claims. It presents a façade of innovation while exposing gaps in understanding and execution.
But I am not finished yet.
“Below is a list of the HTTP endpoints that can be used instead of smart contract calls. These endpoints are public and do not require authentication.”
The website restricts access based on location, specifically targeting non-US persons to comply with legal or regulatory requirements. But if they’re so concerned about jurisdictional compliance, why is the Web2 API open to everyone without authentication? By allowing unrestricted API access, they're effectively bypassing the same restrictions they enforce on the website. Anyone, including US persons, could simply use the API to query data.
And the fees:
They have a subscription fee of 0.10% and a redemption fee of zero if you want to redeem in PYUSD, which is yet another acronym and seems to refer to PayPal’s stablecoin but they never say what this is. But if you use Circle’s USDC, it’s another 0.10%. I guess removing this will be part of "realizing synergies" following the acquisition.
A performance fee of 10% of the yield for a quasi MMF? What performance? I thought they do short-term repo to get a risk-free rate.
And the tokens—what are they exactly?
“Tokens represent shares in the fund, thus all token holders need to be onboarded and KYC/AML’d by Hashnote to be able to own SDYF shares. The fund administrator moves shares in the SDYF share registry to reflect movements in the USYC token.
Ownership in SDYF is represented as shares at the Transfer Agent, and their digital twins are represented on-chain as a Smart Contract token (ERC-20 specification). The on-chain representation introduces additional utility beyond what has been historically possible in traditional finance.”
So, the usual. The tokens are mostly for entertainment. And we have a daily price at which one can subscribe or redeem, just like real MMFs. So, no change there.
“USYC price reports typically occur at 6:45 am ET (subject to delays due to operational or technical reasons).”
There was a Cantor press release from October 15, 2024. But it is no longer active.
Built in privacy? Isn’t that coming from Cantor and not from Hashnote?
Hashnote also has super-rights—i.e., not your smart contract, not your token:
“Hashnote has the ability to prevent any transaction from being completed.”
According to Etherscan, the fund has 29 token holders, and 1 (usual: Treasury) holds 97% of them. That makes this vehicle high risk for the other 28 investors. What is Usual? It’s another stablecoin issuer with the slogan:
“Together, we are bigger than BlackRock.”
Oh, and this one:
“Time is ownership”
To which I would respond: Huh???
They have an interesting white paper explaining their mission:
“Tether and Circle collectively generated over $10 billion in revenue in 2023, with valuations surpassing $200 billion, yet none of this wealth is redistributed to the users who drive their success. These providers effectively charge users all future income that would otherwise be earned in TradFi to participate in DeFi. Such practices pose significant barriers for permissioned institutions seeking open, trustless access to stablecoin products and for permissionless users who, despite entering DeFi, still lack access to yield from these assets.”
So, Circle buys something that generates 97% of its business from someone who wants to take Circle out of business?
I can’t wait for the next episode of this comedy.
One closing thought: Since they say they hold securities via BONY, I suppose it’s possible they could also use them to manage the repo trading. Are they, by any chance, using their sponsor FICC Clearing, which provides anonymity? A Cayman LLC would principally qualify for sponsored access. But some of the money (part of the 3%) comes from Deribit, for instance—an offshore exchange trading crypto derivatives (structured in a way the CFTC wouldn’t recognize)—which also doesn’t allow access for US persons.
It’s an interesting thought: how speculative crypto trading might be financing US brokers this way when they all say: “No US persons!!”