• MakerDAO members agreed to invest $500 million DAI in US Treasuries and corporate bonds
  • “Revenue from the real world can offset some of the revenue we’ve lost to crypto,” said MakerDAO’s TJ Ragsdale.

MakerDAO’s latest governance proposals signal ways in which the protocol is slowly adopting real-world assets.

Last week, the DAO passed a proposal to invest $500 million of DAI stablecoin in US Treasuries and corporate bonds. Voters agreed there would be an allocation of 80% to short-term US Treasuries and 20% to investment-grade corporate bonds.

This proposal was an attempt for the DAO to generate a return from its DAI holdings with professional bond managers and to diversify counterparty risk, ultimately strengthening the DAO’s balance sheets.

Members of the Maker Protocol are currently figuring out if and how integration can happen, Luca Prosperi, who leads MakerDAO loan monitoring, told Blockworks.

“I think the decision to invest half a billion dollars in US Treasuries was a good decision,” Prosperi said. “But given the amount of money, things have to be done right because we have to make sure the money is actually used that way.”

A pillar of Ethereum’s decentralized financial ecosystem, MakerDAO is a token-powered system that supports cryptocurrency borrowing and lending, peer-to-peer.

MakerDAO has, since December 2017, issued and regulated the oversized DAI, intended to be pegged 1 to 1 with the US dollar. It is currently the fourth largest stablecoin, with a market value of $6.4 billion.

The DAO also has its own native token, MKR, allowing users to vote on governance issues such as the adoption of US Treasuries and corporate bonds. The community’s decision to allocate funds in fiat may have been prompted by the collapse of Terraform Labs’ LUNA and its algorithmic stablecoin UST, but it’s crucial to note that unlike LUNA, MKR does not not directly support the issuance of DAI. Instead, MKR holders guarantee the stability of DAI; in exceptional circumstances, MKR may act to recapitalize the protocol as a last resort.

Embracing real-world assets can help maintain DAI’s peg to the US dollar. But the fund allocation is not the only move that has been proposed to maintain the protocol’s position as a leader in the cryptocurrency lending and borrowing space.

Rising Real Rates Provide Opportunity for MakerDAO

Currently, it is prohibited to make loans in US dollars. MakerDAO could be the first protocol to offer conventional loans to borrowers backed by traditional institutions if its latest proposal is approved, which would add Huntington Valley Bank (HDV), a US-chartered commercial bank in Pennsylvania, as a new DAI of 100 million participating in the debt ceiling.

To put it simply, HVB will provide real-world assets as collateral to receive a 100 million DAI loan which they can use to expand their existing business. As of this writing, 84.55% of voters support the move.

“As demand for crypto leverage declines, real-world rates rise, so there is an opportunity where Maker can mint DAI at a low cost of capital and loan it out against some really good solid real-world assets. at a higher rate,” TJ Ragsdale, who manages real-world assets at MakerDAO, told Blockworks. “Revenue from the real world can offset some of the revenue we’ve lost to crypto.”

In the long term, Ragsdale believes that integrating with TradFi will allow DAI to “really grow to its full potential, it needs to be seen as legit, not just by crypto participants, but real world participants as well.”

Although the adoption of real-world assets has been driven primarily by MakerDAO community members, there are concerns that the protocol is becoming more centralized.

“Crypto was born because we didn’t like centralization and reliance on governance, but now we’re digesting government bonds,” Prosperi said. “I think we went back to the start, which for me is fine, but for purists, not necessarily.”

For Ragsdale, iterating and building MakerDAO to become a reliable real-world transformation tool remains a priority.

“The goal is really to leverage all the value that exists in the real world, and as a Maker – with our unique position in the market, embed the transparency and determinism that we all love about crypto into these traditional systems.


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  • Bessie Liu

    blockages

    Journalist

    Bessie is a New York-based crypto journalist who previously worked as a tech reporter for The Org. She received her master’s degree in journalism from New York University after working as a management consultant for more than two years. Bessie is from Melbourne, Australia. You can contact Bessie at [email protected]