The Republic of the Marshall Islands’ natively issued the first digital sovereign bond and its use in an onchain repo transaction is seen as pivotal for future capital markets moving onchain.

Market maker Virtu Financial, electronic trading platform Tradeweb and M1X Global, which works across government and institutional markets to unlock new applications of blockchain technology, said in a statement that they had completed the first fully onchain repo transaction in which the securities leg was a sovereign digital bond.

The Virtu repo was executed bilaterally on the Tradeweb platform between regulated institutional counterparties. The securities leg was USDM1, which was issued onchain by the Marshall Islands. The repo was executed on the Canton network, the privacy-enabled blockchain from Digital Asset, with every element of the transaction, securities delivery, cash leg and return settled atomically onchain. This eliminates intraday balance sheet inflation and settlement exposure that arises under trades that settle the following day, T+1.

Mark Lurie, chief executive officer of MX1 Global, told Markets Media the use of a natively issued onchain sovereign asset in a repo is “extremely powerful.” M1X helped coordinate the Marshall Islands’ issuance of USDM1.

He added that institutions are interested in blockchain because the promise of 24/7 collateral mobility and increasing the capital efficiency of repos is so compelling.

“However, the balance sheet cost penalties of using existing onchain assets outweigh the benefits of collateral mobility,” Lurie said. “USDM1 flips that math and provides a business case for institutions moving onchain at scale.”

Lurie argued that USDM1 is the last enabling piece necessary for institutions to move onchain in a big way and realize the benefits of tokenization and distributed ledgers.

The Republic of the Marshall Islands uses U.S. dollars as its currency and USDM1 is structured under New York law in the style of a fully collateralized Brady bond. The structure is named after former U.S. Treasury Secretary Nicholas Brady, who developed the initiative for developing countries to issue U.S. dollar-denominated debt backed by U.S. Treasuries to help them restructure their debt and promote economic stability. USDM1 is backed 1:1 by short-dated U.S. Treasuries held in bankruptcy-remote custody.

As a result, USDM1 is eligible for inclusion in ISDA and GMRA close-out netting sets. As a sovereign bond USDM1 has a materially lower risk-weighted asset consumption than corporate payment stablecoins, tokenized money market fund shares or unrated digital asset exposures. In addition, USDM1 pays a coupon when used as margin or collateral, unlike other digital cash instruments.

Dan Eckstein, head of rates sales at Virtu Financial, said in a statement that capital efficiency shows up directly in the firm’s ability to deploy working capital and serve clients. Eckstein said: “USDM1 addresses collateral constraints that have limited onchain capital markets and prevented them from reaching institutional scale.”

Lurie said: “Ten  years from now, we will look back and think this trade was the pivotal moment when this new model was pioneered, and that is really exciting.”

USDM1 can be sent or pledged anywhere in the world, according to Lurie, so it could help increase repo efficiency globally.

STS Digital

In August this year STS Digital, a Bermuda-regulated principal trading firm, said it will accept USDM1 from eligible counterparties and pledge the instrument as collateral across its over-the-counter derivatives, structured products, and financing relationships.

Maxime Seiler, chief executive of STS Digital, said in a statement: “Accepting USDM1 from eligible counterparties, pledging it across our own trading and financing relationships and utilizing it in structured products supports more efficient inventory financing, tighter client pricing and greater trading capacity per dollar of balance sheet.”

STS Digital stressed that USDM1 brings onchain collateral with 24/7 transferability into established institutional derivatives frameworks. Other corporate digital dollar instruments are often not covered in industry netting opinions. In contrast, USDM1 can be used as margin under standard derivatives documentation supporting legally enforceable netting sets, and may reduce unsecured counterparty exposure and the amount of other collateral required to support a portfolio.

“Bank for International Settlements data show that, at year-end 2025, legally enforceable netting reduced the gross market value of outstanding OTC derivatives by approximately 85.3%, or $19.4 trillion,” added STS Digital. “USDM1 brings onchain collateral into the frameworks supporting these efficiencies.”

Lurie said STS Digital is the first institutional trading firm to use USDM1 but others are in the pipeline.

He continued that USDM1 was also used in the sandbox run by ISDA, the derivatives trade association and Global Digital Finance, and the initial launch of the DTTC’s tokenization program.