• MakerDAO, the decentralized organization behind $DAI has been trying to bring real-world assets into collateral mix
  • Over 50% of $DAI is currently generated from $USDC collateral, but the Maker Community plans to address centralization risk

MakerDAO, the decentralized autonomous organization behind the $DAI US dollar-pegged stablecoin has received a historic proposal from Société Générale-Forge (SG-Forge), an affiliate of French investment banking giant Société Générale (SG). The company wants to onboard tokenized, AAA-rated euro-denominated bonds, into the MakerDAO system.

In DeFi circles, there is a running joke that turns “the future of finance” — as though by an auto-correct-mishap — into “the future of France.” Now it looks like France’s future may, after all, include some DeFi dollars.

This first experiment at the crossroads between regulated and open source initiatives…is intended to refinance a Covered Bond Token that has been issued last year on the Ethereum public blockchain,” wrote Société Générale-Forge in their proposal to MakerDAO.

Société Générale is a European banking behemoth, with 138,000 employees in 62 countries. While this initiative is described as experimentation, it is very much in line with the aims of MakerDAO to increase the collateral base of its $DAI stablecoin and diversify away from a reliance on volatile crypto assets (namely ether) and other centralized stablecoins such as $USDC which currently backs about half the $DAI in circulation:

The OFH Tokens are tokenized securities (available on Bloomberg as SIN FR0013510518). They carry a nominal value of €40 million, are issued on Ethereum and are backed by home loans issued by a Société Générale-affiliated credit institution. The security tokens are based on the open-source framework CAST (Compliant Architecture for Security Tokens), which has previously been employed by Banque de France and the European Investment Bank both on the Ethereum and Tezos blockchains.

SG-Forge plans to borrow up to 20 million $DAI for a period of six to nine months, which it will convert to US dollars and loan to its parent SG in exchange for the use of the $OFH tokens as Pledge — effectively a refinancing of the OFH Tokens.

Dealing with a DAO

Since the Maker Community is organized as a DAO, the proposal requires that the community vote to appoint as a Maker Representative — DIIS Group — that will be empowered to execute the legal contracts for the transaction.

Unlike other assets backing the creation of the $DAI stablecoin, the OFH Tokens have no liquid market, so the liquidation procedure — in the event the loan becomes undercollateralized — is rather more manual than generally applies to MakerDAO’s other collateral vaults.

However, SG-Forge notes in its proposal notes that this just a first step; European regulations are evolving to support security tokens, and they expect that further growth in OTC desks and other trading venues will allow for more automated liquidation possibilities in the future.

The proposal was met with overwhelming support by the Maker Community forum participants with one calling the proposal, “a new landmark in DeFi and showing how DeFi and TradFi are merging together to create Finance 2.0.”

Also of note is that the founder of MakerDAO, Rune Christensen, was evidently unaware of the community efforts behind the scenes to bring this proposal to fruition.

The Maker Foundation is expected to be dissolved by the end of this year, at which point the Maker Community will have full control over the DAO.

The proposal will next undergo an extensive review and discussion phase before it can be implemented, but there is clearly momentum behind the initiative to make this experiment a success.

  • Macauley has been an editor and content creator in the professional chess world for 14 years. In 2020 he graduated from Bucerius Law School (Hamburg, Germany) with a Master in Law and Business, where he researched stablecoins, decentralized finance and central bank digital currencies. He also holds an MA in Film Studies and his film credits include Associate Producer of the 2016 feature documentary, "Magnus" about World Chess Champion Magnus Carlsen.