MakerDAO to invest 500 million DAI in U.S. Treasuries and corporate bonds: Purpose and Details

The stablecoin issuer MakerDAO is set to finalize a governance proposal in two days, which will allocate $500 million worth of stablecoins to be invested in U.S. treasuries and corporate bonds. What is the purpose and content of this proposal?

Purpose of the Proposal

The MIP65 proposal, first introduced in February 2022, aims to enable a "Real-World Asset" (RWA) vault through the Peg Stability Module (PSM) to acquire USDC and invest it in a high-quality liquidity bond strategy. The collaborative execution partner is Monetalis.

MakerDAO states that currently, USDC is the largest single asset on the MakerDAO balance sheet, but it does not provide any interest return.

Additionally, MakerDAO bears the risk of "USDC Wrappers" because USDC can be used as collateral to mint DAI, and if stablecoin issuers such as USDC, USDP, etc., blacklist Maker, it could pose catastrophic risks. Therefore, they have decided to reduce the holdings of these stablecoins and shift towards real-world assets. Following discussions with various community members, MakerDAO will collaborate with professional bond brokers, with the priority being to initiate a diversified strategy. Numerous execution and legal policies were established after discussions, the proposal was confirmed for implementation by the end of May, and investment allocation voting began at the end of June.

Who is Monetalis?

Monetalis is a small and medium enterprise lending company that aims to promote the "green economy" through lending facilitated by MakerDAO. The green economy, as defined in the United States, is an economy that is low in carbon emissions, efficiently uses resources, and is socially inclusive. MakerDAO founder Rune Christensen had invested in this company but has since divested his shares, as disclosed here.

Monetalis works closely with MakerDAO, and the overall project is referred to as Monetalis Evolution, consisting of three main elements:

• ARENA: Integration point between traditional finance and DeFi
• CLYDESDALE: Bringing traditional financial institutions into DeFi
• LUSITANO: Bringing high-quality investment teams into DeFi

In general, MakerDAO believes that DeFi and traditional finance are complementary, which is a core concept in the introduction of real-world assets in the past.

Contents of the Voting Proposal

Following the approval of the MIP65 proposal, the vote on June 28 aimed to determine the allocation of five billion DAI among four options:

1. 100% U.S. short-term treasuries - provided by investment bank BlackRock's iShares ETF, with 40% in 0-1 year treasuries and 60% in 1-3 year treasuries

2. 80% U.S. short-term treasuries, same composition as option one, and 20% investment-grade corporate bonds - provided by investment management company Baillie Gifford, in 0-5 year corporate bonds

3. Abstain

4. Reject options

Currently, option two, with 80% U.S. short-term treasuries and 20% investment-grade corporate bonds, has received a vote of 98.84%, with a total of 27,330 MKR participating in the vote.

Impact of MakerDAO's Strategy

MakerDAO acknowledges the benefits of reducing the risks associated with centralized stablecoin issuers, as proposed in "stable+" within the governance community, comparing it to holding USDC. For MakerDAO, holding too much USDC may lead to blacklisting, it competes with DAI, affects the overall cryptocurrency market risk, does not generate returns, and lacks contractual protection between USDC issuers and MakerDAO. However, accepting real-world assets can overcome these drawbacks. Like USDC, these assets are backed by U.S. treasuries. MakerDAO does not hold these assets in the role of stablecoin issuers but invests through intermediaries and shares a portion of the investment returns with MakerDAO.

While MakerDAO aims to reduce its own risks, dforce founder Yang Mindao believes that this move could bring infinite revenue possibilities and gradually challenge USDC.