by skeptic_ai | 2026-03-07 10:02:17+00:00
Nobody passes this through an llm ? They seem a bit sketchy

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*TL;DR*
Palus Finance is offering a legitimate corporate treasury strategy, but their marketing relies on severe misdirection. They are pitching a floating-rate Mortgage-Backed Securities (MBS) portfolio as a direct replacement for a Money Market Fund (MMF). They achieve this by intentionally conflating liquidity (the time it takes to sell an asset) with price stability (getting 100% of your principal back). Furthermore, they are currently acting as a middleman, charging a 0.25% fee to put user funds into a publicly traded ETF (MBSF) while using a smoothed-out UI to hide the ETF's daily price volatility.

Here is an analysis of the structural risks and marketing sleight of hand in the Palus Finance pitch.

### 1. Conflating "Liquidity" with "Principal Stability"

The most dangerous misdirection in their marketing is placing "One business day" liquidity in a direct comparison table alongside a Money Market Fund and a standard Bank Account.

* *The Illusion:* This framing implies that if a startup deposits $1M, they can request a withdrawal and receive exactly $1M plus accrued interest the next day, with zero friction.
* *The Reality:* "Liquidity" in this context strictly means the asset can be sold on the open market in one day. It provides absolutely no guarantee regarding the price of the asset at the time of sale. Money Market Funds are structurally designed to aggressively defend a stable $1.00 Net Asset Value (NAV). Palus does not offer a stable NAV. Because the underlying assets are floating-rate bonds, their price fluctuates daily based on credit spreads and macro-economic factors. If a startup suddenly needs cash during a market stress event, they will get their money in one day, but they will be forced to sell their bonds at a loss, taking a haircut on their principal.

### 2. The "Government-Backed" Halo Effect

Palus leans heavily on the phrase "federally guaranteed," comparing the safety of their mortgage bonds to the US Treasuries held inside a standard MMF.

* *The Illusion:* It creates a halo effect, making the investor feel like the entire investment is immune to losing money, much like an FDIC-insured account.
* *The Reality:* The federal agency guarantee (Fannie Mae, Freddie Mac, Ginnie Mae) only protects against credit default—meaning if the underlying homeowners stop paying their mortgages, the government makes the bondholder whole. It provides zero protection against price volatility. Palus is using a guarantee against a very rare event (homeowner default) to distract from a very common event (the daily market price of the bond dropping due to widening credit spreads).

### 3. The UI Sleight of Hand

In their Hacker News post, the founders openly admit their design philosophy: "Our goal was to create the simplest possible UX for this product: two buttons and a giant number that goes up."

This is the mechanical core of the misdirection. The underlying asset they are using does not just "go up." It is a traded security that experiences daily mark-to-market price action. By building a dashboard that abstracts away the actual charts and only shows a smoothed-out, ever-increasing balance, Palus is visually tricking users into treating a fluctuating bond portfolio like an accrual savings account.

### 4. The "Secret" Asset and Fee Layering

The HN post reveals that Palus is currently executing this strategy by simply buying *MBSF*, the Regan Capital Floating Rate Agency MBS ETF.

This strips away the illusion of a bespoke corporate treasury product. Palus is taking your cash and buying a publicly traded ETF that anyone can purchase in a standard brokerage account.

* *The Catch:* The extra 1.0% to 1.5% yield they advertise is heavily squeezed by fee layering. Users are implicitly paying Regan Capital’s expense ratio for managing the ETF (currently 0.49%), and Palus is charging an additional 0.25% AUM fee on top of that just for providing the UI wrapper.

### The Final Verdict

Palus is wrapping a real, institutional-grade fixed-income strategy in the reassuring, risk-free language of a neobank.

If a startup is managing a large pool of capital and knows they will not touch a specific tranche for 12 to 24 months, capturing the yield spread on floating-rate agency MBS is mathematically sound. However, marketing this as a slightly slower Money Market Fund is a trap. Any founder using this for short-term operational reserves is taking on hidden price volatility that could force them to lock in capital losses exactly when they need runway the most.