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4. SPV Operators

An SPV Operator is the Actor managing the portfolio of collateral in the SPV on behalf of the SPV but for the benefit of a Minter’s business operation. The SPV Operator also acts as selling agent in the context of a wind down (as described in Obligations Outside of the Normal Course of Business) and can even wind down a Minter in cases where the Minter is unable or unwilling to comply with the Protocol rules. Adopted Guidance indicates the entities that should be considered as appropriate to act as SPV Operators in the M0 ecosystem.

4.1. Contact Information of Currently Approved SPV Operators

4.2. Eligibility Criteria for Approved SPV Operators

SPV Operators shall fulfill the following minimum requirements:

  • Be a duly incorporated entity in an Approved Jurisdiction.
  • Minimum affiliation (via its shareholders) with or (practically) control by any Validator and/or Minter, or the affiliates of any Validator or Minter. To the extent that the SPV Operator has overlapping stakeholders with other Actors within the ecosystem, it is the duty of the SPV Operator to provide evidence of appropriate corporate governance and liability separation in dealing with collateral.
  • It has obtained and maintained all necessary licenses, authorisations and consents for the performance of its obligations under the mandatory agreements it needs to enter into with other ecosystem participants according to the Adopted Guidance.
  • It maintains a contractual relationship with the SPV that under no circumstance endangers the status of that SPV to be considered as such in its Approved Jurisdiction, as outlined in Approved Jurisdictions.
  • It has meaningful equity to sustain its business.
  • It has developed and can provide upon request a business plan for the following 3 years of operations.

4.3. Obligations of SPV Operators

SPV Operators are expected to enter into a Minter-SPV Operator Agreement with every Minter they provide services to. Today, these agreements are considered part of the Mandatory Contracts as defined in the Adopted Guidance. In case of any change to the Mandatory Contracts, the Minter and SPV Operator, as any other Actor, are expected to amend the Minter-SPV Operator Agreement accordingly without delay.

The mandate of the SPV Operator to manage the collateral is intended to have the main objective be to protect the stability of M under all possible circumstances. For this reason, the Adopted Guidance suggests prudence in adopting technological innovation at this level of the stack.

To that end, the duties of the SPV Operator can be divided into two groups:

The Normal Course of Business generally refers to the scenario where the Minter operates in accordance with the Protocol rules and is fully capable of doing so. As a consequence, outside the Normal Course of Business refers to all scenarios where the Minter is, for example, non-compliant with the rules of the Protocol, enters into insolvency, or is incapacitated or unwilling to fulfill its obligations for other reasons.

4.3.1. Obligations in the Normal Course of Business

In the Normal Course of Business the SPV Operator shall manage the Collateral Storage in accordance with the Adopted Guidance and all applicable laws and regulations.

To that extent, the SPV Operator shall use most or all available financial resources (including Deposit Equivalents) to purchase Eligible Collateral. Some flexibility on reinvestment should be provided to the SPV Operator in order to timely fulfill existing or foreseen Retrieval Requests. It shall do so whenever available financial resources are existing in the Collateral Storage unless such available financial resources are part of a Retrieval Request or the amount is economically negligible. The following chart shows an example of the replenishment of Eligible Collateral in the Normal Course of Business:

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  1. Any liquidity event affecting any collateral instrument (e.g. upon maturity of the instrument or as regular interest payment or other cashflow) is paid within the Collateral Storage, or more specifically to the custody accounts of the SPV.

  2. Without delay, the SPV Operator initiates the purchase of new Eligible Collateral. This means that the amount of collateral, all other factors unchanged, will grow over time. The only way for the Minter to extract collateral is via the Retrieval Process.

The SPV Operator shall also cooperate with the Minter to execute Retrieval Processes. When a Minter requests a retrieval of collateral with the SPV Operator, the SPV Operator shall verify that a respective RetrieveID is existing in the Protocol. Once verified, the SPV Operator shall timely sell a corresponding amount of collateral and/or use liquidity from maturity collateral maturing at the same day and transfer the amount requested to be retrieved to the Minter.

4.3.2. Obligations Outside of the Normal Course of Business

The interruption of a Minter’s Normal Course of Business, due to a diverse set of circumstances that the Adopted Guidance intends to address, should immediately or within a realistic timeframe lead to a Wind Down of such a Minter.

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Minter De-Permissioning refers to any event resulting in a successful Governance vote to remove a Minter from the list of Permissioned Minters. Permissioned Minters are any entities in the M0 ecosystem that have been permissioned by Governance to mint M. The Minter De-Permissioning is the main smart-contract enforced way for a Minter to leave the Normal Course of Business and enter a Wind Down process. A Wind Down is the process of progressively terminating a Minter’s operations by the SPV Operator, who sells or otherwise realizes the Eligible Collateral, using all available financial resources to purchase M in the market, and burning such M in repayment of the Minter's Owed M. Depending on the scenario, such a Wind Down will be done either in an amicable way – i.e. the Amicable Wind Down, or under the full control of the SPV Operator – i.e. the Non-Amicable Wind Down. The intention of this staged process is to give the ability to a Minter in good faith with the ability to remedy its actions and provide an orderly execution of its exit process, while maximizing funds recovery in the interest of the protocol.

In other exceptional cases in which a Minter is incapable of redeeming, a Minter’s set of counterparties could go directly to the SPV Operator for the successful execution of a primary redemption, provided that all core principles of the Adopted Guidance remain intact.

During an Amicable Wind Down the Minter shall continue to engage the service of a signature threshold of Validators. The Validator(s) shall continue to check the appropriate balances of the Minter’s SPV and will publish this information to a public forum at least once per Update Collateral Interval.

4.3.2.1. Amicable Wind Down Process

The document refers to an Amicable Wind Down Period as a 90-calendar day period starting on the day after a Minter De-Permissioning. In providing a window for the execution of an Amicable Wind Down, the Adopted Guidance intends to avoid, as much as possible, any unfairness towards a Minter, as well as protect its ability to resolve any outstanding liability against the protocol.

During an Amicable Wind Down, the SPV Operator shall act as the supervisor of the orderly wind down and shall assist the Minter on a best-effort basis in redeeming its Owed M. To redeem, the Minter shall purchase and burn M by calling the burn() function and specifying the Minter’s address in that call, which effectively reduces the Minter’s Owed M balance by the burned amount. Following each Burn Event in its respective address, the Minter shall notify the SPV Operator, and the SPV Operator shall verify the occurrence of such Burn Event onchain. Upon successful verification, the SPV Operator shall initiate the sale of Eligible Collateral and transfer an amount to the Minter that equals the amount burned in a Burn Event divided by the Mint Ratio, which was valid at the time the Minter De-Permissioning occurred.

During an Amicable Wind Down, the SPV Operator shall not be obliged to meet any portfolio composition requirements laid out in the Adopted Guidance. If the Minter wishes to provide recommendations to the SPV Operator concerning the sale of Eligible Collateral with respect to (including but not limited to) minimum execution price, execution time and type of instrument, such recommendations shall not be binding. However, the SPV Operator shall commit to following them solely on a best-effort basis. If a full repayment of the Minter’s Owed M is reached within the Amicable Wind Down period, any residual financial value shall be paid to the Minter.

If a full repayment is not reached within the Amicable Wind Down period, no further amounts shall be paid to the Minter and the SPV Operator shall initiate a Non-Amicable Wind Down, as described below.

For sake of clarity: during the Amicable Wind Down Process, the option to transition into a Non-Amicable Wind Down Process with immediate effect is not excluded. While it is the main goal of the SPV Operator to protect the stability of M, this can only be achieved if the SPV Operator does not face a situation where itself might be in violation of applicable laws within the jurisdiction it is operating from. Therefore, in the case of severe changes in circumstances, especially but not limited to its contractual relationship with the Minter, leading to the situation that the SPV Operator needs to cease its contractual relationship with the Minter to maintain compliance, the SPV Operator might transition from a Amicable to a Non-Amicable Wind Down Process with immediate effect in regards to the Minter.

4.3.2.2. Non-Amicable Wind Down Process

Once the Amicable Wind Down Period has lapsed, and provided that the Owed M exceeds 0 and the Collateral Storage still contains collateral, the SPV Operator shall unilaterally and contractually wind down the Minter’s structure through the so-called Non-Amicable Wind Down. In case the Minter has not been de-permissioned before, i.e. if the Non-Amicable Wind Down has been triggered by exceptional conditions described below, the SPV-Operator is required to submit a governance proposal to de-permission the respective Minter. The SPV Operator shall act as a selling agent of the collateral and shall distribute all proceeds in accordance with the rules of the Adopted Guidance. More specifically, as part of the Non-Amicable Wind Down, the SPV Operator shall no longer disburse any proceeds from the sale of collateral to the Minter.

As part of a Non-Amicable Wind Down, in the case a Minter is incapable or non-cooperative of redeeming, a Minter’s set of counterparties could go directly to the SPV Operator for the successful execution of a primary redemption, provided that all core principles of the Adopted Guidance remain intact and that the appropriate contractual obligations between Minter and counterparties regulate those situations.

The SPV Operator shall exercise best effort in reaching the maximum reduction of Owed M related to the Minter part of the Non-Amicable Wind Down process by, e.g.:

  • Waiting for collateral maturity while interrupting the automatic replenishment (run down the portfolio) if the market conditions require to do so, and subsequently burn such M on the Minter’s behalf.
  • Selling all remaining collateral on a best effort basis and using all available proceeds to purchase M on the open market, and subsequently burn such M on the Minter’s behalf.
  • Enter into contractual agreements to dispose of assets and liabilities to another Minter in the network still in the Normal Course of Business.

Should the SPV Operator, due to market conditions surrounding the purchases, have remaining M balance in its control, although the Owed M of the Minter is 0, the SPV Operator shall burn such M and increase the system-wide implicit overcollateralization. Should purchased M not be sufficient to fully bring the Owed M of the Minter to 0, such Owed M will continue to exist, effectively decreasing the Protocol-wide overcollateralization. Governance should act proactively to ensure that such a scenario will never materialize, by appropriately monitoring individual collateralization levels and/or de-permissioning Minters that constitute excessive risk for the Protocol.

In addition to Minter De-Permissioning, the Adopted Guidance considers additional circumstances that should lead immediately to a Non-Amicable Wind Down. Those circumstances are described below.

4.3.2.3. Minter Insolvency

The SPV Operator shall enter into a Non-Amicable Wind Down immediately as soon as they receive a valid notification that a Minter has filed for (or has been filed for) insolvency.

The Minter shall need to indemnify the SPV Operator for any claims brought forward by an insolvency administrator against the SPV Operator in context of a insolvency-related Non-Amicable Wind Down.

4.3.2.4. Unauthorized Termination of Minter – SPV Operator Agreement

It is crucial that all Eligible Collateral is always available to back the Owed M. To that end, it is mandatory that Minters contract with SPV Operators who are permissioned by Governance and listed in the Adopted Guidance to operate the Collateral Storage.

To avoid any circumvention of Governance-led rules, e.g. by exchanging the SPV Operator with an unauthorized party, it is expected that Minters shall only replace an SPV Operator with another permissioned SPV Operator.

In the case a Minter, while remaining a Permissioned Minter or within the Amicable Wind Down Period, terminates the Minter-SPV Operator Agreement without replacing it with another viable agreement meeting the criteria as outlined in the Adopted Guidance, the SPV Operator shall perform an immediate Non-Amicable Wind Down. A termination during a Non-Amicable Wind Down shall generally be excluded.

4.3.3. Operational Obligations of SPV Operators

To ensure smooth operations the SPV Operator needs to comply with the following additional obligations.

4.3.3.1. Co-signature of the SPV for significant payments

To protect against unauthorized transactions that could lead to significant loss of funds, the SPV Operator shall set up the respective Collateral Storage such that the signature of the SPV (via its corporate service provider) shall be required (in addition to its own) in order to externally transfer financial resources that are considered significant payments.

The definition of what constitutes significant payments, as well as the respective sign off limits, shall be assessed and if necessary, adjusted on a quarterly basis such that payments exceeding the typical interest payments (in case existing) require the signature of the SPV via its corporate service provider.

4.3.3.2. Cooperation with Validators

The SPV Operator shall cooperate in any required way, as defined in the Adopted Guidance, with Validators in the network. This includes supporting the Minter to provide read access to the Validator of the Collateral Storage.

4.3.3.3. Maintenance of Administrative Buffer

Administrative Buffer is defined as a reserve of 25,000 worth of Deposit Equivalents that the SPV Operator can use to cover possible offchain administrative costs, such as assisting with the Wind Down of the Minter or resolving legal disputes, according to the rules set out in the Adopted Guidance. Such a buffer should exist within the Collateral Storage in a way considered satisfactory by the SPV Operator, but should not in any case be simultaneously pledged to the system as Eligible Collateral for minting. For the avoidance of doubt, the SPV Operator shall be allowed to use the Administrative Buffer to ensure operations in cases where the Minter is unwilling or unable to cooperate. Where the Administrative Buffer is not meeting the minimum amount specified in the Adopted Guidance, the Minter shall not submit any mint proposals. Should the Minter still submit a mint proposal despite an insufficient Administrative Buffer, the SPV Operator shall socialize this concern (i.e. through the network of Validators, Governors, or other stakeholders). As in any social consensus construct, stakeholders are expected to act accordingly, in their own interest. Only following the completion of a Wind Down, any unused part of the Administrative Buffer is to be paid back to the Minter.

4.3.3.4. No Wire Back Instructions

The SPV Operator shall not wire back any financial resources to the Minter except for:

  • Orderly Retrieval Process.
  • Residual financial value, if applicable following a Wind Down process described above.

4.4. Guidelines for Submission of Approval Requests

An application for the approval as SPV Operator shall be submitted via a change proposal of the Adopted Guidance following the process described in Change Process for the Adopted Guidance. The change proposal shall aim to add the SPV Operator to Contact Information of Currently Approved SPV Operators.

Before submitting its application, the SPV Operator shall publish a KYC report via appropriate channels, as well as appropriate proof that the requirements set forth in Obligations of SPV Operators are met:

  • Certified copies of the commercial register and/or trade register and/or register of companies or alike, proving that the company was duly incorporated in the jurisdiction it is providing its services from.
  • Proof of who the ultimate beneficial owners (UBO) of the company are, including proof for negative politically exposed persons (PEP) / sanctions check.
  • Certified copies of all required official licenses required to operate the business and to provide the services outlined in the Adopted Guidance and in the contractual agreements where the SPV Operator is a party to.
  • A legally binding declaration that no insolvency, bankruptcy or similar/comparable proceedings are currently pending or to be anticipated in the foreseeable future in relation to the company.
  • Proof that the company is minimally affiliated (via its shareholders) with or (practically) controlled by any Validator and/or Minter named as permissioned actor in the Adopted Guidance. When there is some level of affiliation, relevant evidence of appropriate corporate governance shall be presented.
  • A legally binding declaration, as long as objectively and legally possible, to set up its business activities in regards to the services and contractual relationships as outlined in the Adopted Guidance.
  • A legally binding commitment, as long as objectively and legally possible, to amend its contractual relationships reflecting potential mandatory changes of the Adopted Guidance.

Where confidentiality concerns emerge, the M0 Foundation can step under Non-Disclosure Agreements to analyze the required documentation and provide a qualified public opinion to the ecosystem.