MakerDAO Adopts Real-world Assets as Crypto Leverage Demand Wanes

MakerDAO may soon be the first decentralized finance protocol to offer conventional loans to borrowers backed by traditional institutions

article-image

Source: MakerDAO

share

key takeaways

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

The latest MakerDAO governance proposals are signaling ways in which the protocol is slowly embracing real-world assets.

Last week, the DAO passed a proposal to invest $500 million worth of stablecoin DAI into US Treasurys and corporate bonds. Voters agreed 80% of the funds would be allocated to US short-term Treasurys and 20% into investment-grade corporate bonds.

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

Maker protocol members are currently in the process of understanding if and how the integration can happen, Luca Prosperi, prominent MakerDAO contributor and former incubating lending oversight facilitator, told Blockworks.

“I think the decision of investing half a billion dollars on US Treasurys was a good one,” Prosperi said. “But given the amount of money, things need to be done properly because we need to make sure that the money is actually being used that way.”

A stalwart of Ethereum’s decentralized finance ecosystem, MakerDAO is a token-powered system that supports borrowing and lending cryptocurrencies, peer to peer. 

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

The DAO also has its own native token, MKR, allowing users to vote on governance matters — such as adopting US Treasurys and corporate bonds. The community’s decision to allocate funds into fiat securities 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 back DAI issuance directly. Instead, MKR holders guarantee DAI’s stability; in exceptional circumstances, MKR can act to recapitalize the protocol as a last resort

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

Rising real-world rates present opportunities for MakerDAO

Currently, it is forbidden to provide loans in US dollars. MakerDAO may be the first protocol to offer conventional loans to borrowers backed by traditional institutions if its latest proposal is approved, which would add Huntingdon Valley Bank (HVB), ​​a Pennsylvania-chartered US-based commercial bank, as a new 100 million DAI debt ceiling participant.

To put it simply, HVB will provide real-world assets as collateral to receive a 100 million DAI loan that they can use to grow their existing business. At the time of writing, 84.55% of voters are supportive of this decision. 

“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. “Revenue coming from the real world can offset some of the revenue we’ve lost from crypto.” 

Loading Tweet..

In the long term, Ragsdale believes that integrating with TradFi will enable DAI to “really grow into its full potential, it needs to be regarded as legitimate, not only by crypto participants but also by real-world participants.” 

Although embracing real-world assets has mostly been encouraged by community members of MakerDAO, there are concerns around the protocol becoming more centralized

“Crypto was born because we didn’t like centralization and dependence on governance, but now here we are digesting government bonds,” Prosperi said.

“I think we are back to the start, which to me is fine, but for the purists, not necessarily.”

For Ragsdale, iterating and building MakerDAO to become a transformative tool that is trusted in the real world remains a priority. 

“The goal is really to take advantage of all the value that lives out there in the real world, and as Maker — with our unique position in the market, build in transparency and determinism that we all love about crypto into those traditional systems.”

Correction, July 7, 2022 at 10:40 am ET: Luca Prosperi is MakerDAO’s former incubating lending oversight facilitator. MakerDAO doesn’t currently have a lending oversight role. The Pennsylvania bank is Huntingdon Valley Bank (HVB), not Huntington Valley Bank.


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Top Icon.png

Research

Osmosis thrived in H2 2023 on the back of increased DeFi activity deriving from recently launched Cosmos-related projects and better market conditions. With new value accrual mechanisms for the native token, Osmosis is well-positioned to continue its strong performance in 2024.

/

article-image

Though the opposing flow trend is likely to slow over time, industry watchers note, bitcoin fund assets could one day eclipse the $90 billion gold ETF space

article-image

Celestia had the first mover advantage. EigenDA has staked ether. What sets Avail apart?

article-image

Bitcoin moved 1% higher Monday morning in New York, Matrixport analysts say $62,000 could happen next month

article-image

It’s hard to believe right now that crypto — even with all of its flexibility and massive capabilities — could ever be like cash on the internet

article-image

Michael Saylor announced Monday morning that MicroStrategy bought 3k more bitcoin after the X account was compromised over the weekend

article-image

Plus, Pudgy Penguins grows its brand and a group of Autoglyphs sell for $14.5 million