STS Digital said on August 12 that it will accept USDM1 as collateral from eligible counterparties and use the instrument across its over-the-counter derivatives, structured products and financing relationships.
The move represents an early attempt to take USDM1 beyond issuance and custody and put it to work within institutional trading infrastructure. Anchorage Digital, tZERO and BitGo have previously announced custody or settlement support for the instrument, while STS Digital said it would use USDM1 in derivatives and secured-financing transactions.
USDM1 is a US dollar-denominated sovereign bond issued on-chain by the Republic of the Marshall Islands. According to its issuer, the instrument is backed on a one-to-one basis by short-duration US Treasury securities held through a US trust company in a bankruptcy-remote structure.
The bond is governed by New York law and is designed to give holders a first-priority security interest in the underlying Treasury collateral under Articles 8 and 9 of the US Uniform Commercial Code. The Marshall Islands uses the US dollar under its Compact of Free Association with the United States, limiting the foreign-exchange and convertibility risks typically associated with sovereign debt issued in another currency.
Testing tokenized assets as working collateral
The significance of the announcement lies less in the tokenization of the bond itself than in whether it can function as collateral within existing institutional agreements.
Many digital dollar instruments can be transferred continuously on blockchain networks, but their use in regulated derivatives and financing markets remains constrained by questions surrounding security interests, insolvency treatment and close-out netting. These legal considerations determine whether an institution can recognize an asset as collateral and reduce its counterparty exposure.
STS Digital said USDM1 could be used as initial or variation margin under standard derivatives documentation. The company also expects the instrument to be compatible with repurchase agreements and securities-lending transactions governed by Global Master Repurchase Agreement and Global Master Securities Lending Agreement documentation.
“As a principal derivatives dealer, collateral efficiency directly affects how we price, fund and scale our book,” said Maxime Seiler, CEO of STS Digital. He said accepting and repledging USDM1 could support more efficient inventory financing, client pricing and trading capacity.
Close-out netting is a central component of conventional derivatives markets because it allows financial institutions to calculate their exposure to a counterparty on a net rather than gross basis. The Bank for International Settlements defines gross credit exposure as gross market value after legally enforceable bilateral netting agreements have been applied, but before collateral is considered. The BIS reported that the gross market value of outstanding OTC derivatives reached $21.8 trillion at the end of June 2025. BIS OTC derivatives statistics
Whether USDM1 receives the proposed regulatory and capital treatment will ultimately depend on the jurisdiction, the transaction structure and the institution involved. M1X Global said the instrument could support Level 1 high-quality liquid asset treatment when held without encumbrance, but acknowledged that any classification would be subject to applicable regulations and the determination of each institution’s prudential supervisor.
From custody to market use
Jordan Goldman, president and chief operating officer of M1X Global, said the arrangement was intended to connect on-chain markets with the collateral, legal and risk-management frameworks used by regulated counterparties.
STS Digital holds a Full “F” Digital Asset Business licence from the Bermuda Monetary Authority. The licence category permits companies to conduct a range of digital asset activities, including exchange, custody and digital asset derivatives services.
USDM1 is being offered outside the United States under Regulation S and has not been registered under the US Securities Act. Its legal, accounting and regulatory characteristics cited in the announcement were provided by the issuer and its advisers and have not been independently verified by STS Digital.
The adoption will therefore be an important practical test of whether a tokenized sovereign instrument can deliver more than faster settlement. Its broader relevance will depend on whether counterparties accept it at scale, how they value it relative to conventional Treasury collateral, what haircuts they apply and whether it remains transferable during periods of market stress.
