Procurement spread

How it works

Procurement spread is the margin an issuer earns by sourcing the underlying asset below the benchmark used to set NAV. It is structurally separate from the disclosed creation fee: the creation fee is what the user pays to participate, while the procurement spread is what the issuer captures at the acquisition layer before the user is involved.

In practice, an issuer buying gold may negotiate volume discounts, use futures basis trades, or access institutional OTC markets at tighter spreads than the spot benchmark. For treasury-backed tokens it can be the gap between the secondary-market bill price and its NAV-equivalent yield. For private credit it often appears as the gap between the borrower's interest rate and the yield passed through to holders.

Design consequence

This matters for revenue modeling and disclosure. An issuer with a low or zero creation fee can still be highly profitable on procurement spread, so the creation fee alone is not a reliable signal of economics. An undisclosed spread sitting between the headline benchmark and the actual acquisition cost creates a structural information asymmetry between issuer and holder. In some regimes, particularly where the token is a security or structured product, that asymmetry is a material disclosure obligation.

In a revenue-first model, the procurement spread is a named, quantified line item alongside the creation fee, the management fee, and any market-maker arrangement. Burying it inside a blended NAV methodology is not transparency, it is its absence.

Common mistake

Teams treat procurement spread as a bonus rather than a modeled line, then underprice the creation fee because they are relying on procurement margin to subsidize their economics. When institutional OTC discounts compress or the futures basis flips, the margin disappears, and the issuer has no clean way to explain a fee increase to holders who never knew procurement spread existed.