- MakerDAO formally approved Huntingdon Valley Bank’s facility in July
- The move is seen as an effort to diversify MakerDAO’s counterparty risks away from centralized crypto entities
MakerDAO has officially connected its native stablecoin DAI to traditional finance through a partnership with Huntingdon Valley Bank (HVB), a community bank in Philadelphia.
The protocol announced today its formal offering to HVB of 100 million DAI, marking the “first commercial loan participation between a US Regulated Financial Institution and a decentralized digital currency.”
HVB sought the DAI to support the growth of existing businesses and investments in March, when it formally submitted a MakerDAO onboarding application.
In return, MakerDAO will be able to diversify its counterparty risks and generate yields from its DAI holdings via HVB’s bond managers.
The initial loan is worth up to $100 million, with the first transaction opening up half of the total facility. HVB has the ability to request more capital over the next 12 months.
MakerDAO formally brought in HVB as a new stablecoin vault type in July with a governance vote, which garnered 87% approval — not long after the collapse of Terra and its algorithmic stablecoin UST.
“As demand for crypto leverage is decreasing, rates in the real world are rising, so there’s an opportunity where Maker can mint DAI at a low cost of capital and lend it against really good, robust real-world assets at a higher rate,” TJ Ragsdale, who manages real-world assets at MakerDAO, told Blockworks in July.
“Revenue coming from the real world can offset some of the revenue we’ve lost from crypto,” he said.
Not to mention, recent sanctions on crypto mixer Tornado Cash have caused members of the MakerDAO governance to become wary of its stablecoin being too reliant on centralized stablecoin issuers, particularly Circle.
Indeed, the protocol remains torn between ideologies of centralization and decentralization. But moves like these — facilitating loans to traditional finance — are all the more critical for MakerDAO moving forward.