MakerDAO uses real-world assets as demand for crypto power declines

The latest MakerDAO governance proposals signal ways in which the protocol is slowly embracing real values.

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

This proposal was an attempt by DAO to generate returns from its DAI holdings with professional bond managers and to diversify counterparty risk, and ultimately strengthen DAO’s balances.

Maker protocol members are currently understanding if and how the integration can take place, Luca Prosperi, head of MakerDAO’s lending monitoring, told Blockworks

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

MakerDAO, a solid Ethereum decentralized financial ecosystem, is a token-driven system that supports peer-to-peer cryptocurrency borrowing and lending.

Since December 2017, MakerDAO has issued and regulated DAI with collateral, intended to be linked 1-to-1 with US dollars. It is currently the fourth largest stack coin, with a market value of $ 6.4 billion.

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

Embracing real-world assets can help maintain DAI’s link to the US dollar. However, fund allocation is not the only decision proposed to maintain the protocol’s position as a leader in cryptocurrency lending and lending.

Rising prices in the real world give MakerDAO the opportunity

For the time being, it is forbidden to give loans in US dollars. MakerDAO may be the first protocol to offer conventional loans to borrowers backed by traditional institutions if the latest proposal is approved, which will add Huntington Valley Bank (HDV), a Pennsylvania Chartered US-based commercial bank, as a new 100 million DAI debt taker .

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

“When the demand for crypto influence declines, real-world prices rise, so there’s an opportunity for Maker to make DAI at a low cost of capital and lend it to really good, robust real-world assets at a higher rate,” TJ Ragsdale who manages real-world assets at MakerDAO told Blockworks. “Real-world revenue can offset some of the revenue we’ve lost from crypto.”

In the long run, Ragsdale believes that integration with TradFi will enable DAI to “truly grow to its full potential, it must be considered legitimate, not only by crypto participants, but also by real-world participants.”

Although embracing real values ​​has largely been encouraged by MakerDAO community members, there are concerns about the protocol that are becoming more centralized.

“Crypto was born because we did not like centralization and dependence on governance, but now we digest government bonds,” Prosperi said. “I think we’re back to square one, which is fine for me, but for the purists, not necessarily.”

For Ragsdale, it is still a priority to iterate and build MakerDAO to become a transformative tool that is reliable in the real world.

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

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