DEFI

The next stage of DeFi? MakerDAO proposal approved to provide $100 million in loans to traditional banking institutions.

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The next stage of DeFi? MakerDAO proposal approved to provide $100 million in loans to traditional banking institutions.

MakerDAO will provide a $100 million loan to Huntingdon Valley Bank, which has over 150 years of history. HVBank will use real-world assets from its balance sheet as collateral, and MakerDAO will establish a multi-bank trust company to ensure the proper execution of the DAI minting and burning process, as well as jointly manage the bank's loan assets. The founder of Blockworks referred to MakerDAO's integration of real-world assets as the catalyst for the next bull market.

Huntingdon Valley Bank

Huntingdon Valley Bank HVBank was founded in 1871 and is a subsidiary of the publicly traded, state-chartered commercial bank HV Bancorp. Inc. with the Nasdaq symbol: HVBC. It is regulated by the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), the Pennsylvania Department of Banking, and the U.S. Securities and Exchange Commission (SEC).

According to a proposal by MakerDAO here, HVBank is now able to open a MakerDAO Vault, using real-world assets from its balance sheet as collateral to borrow up to 100 million DAI tokens.

MakerDAO Proposal

MakerDAO will establish a multi-bank trust company in Delaware called MakerDAO Bank Participation Trust, MBPTrust. MBPTrust will ensure that HVBank can properly conduct the DAI minting and burning process in the MakerDAO Vault, and will jointly manage HVB's loan assets.

The structure of MBPTrust is designed to support multiple banks in the future, but currently only applies to HVBank.

Initially, HVBank can borrow up to $100 million, with the limit increasing to $1 billion within the next 12 months. HVBank will initially have a 50% ownership of the loans issued through this program, gradually decreasing to 5%, with the rest owned by MBPTrust to mitigate risks.

The borrowed DAI from HVBank will be used to support the bank's operations. The proposal claims that this will generate approximately 3% annual revenue for MakerDAO, and if HVBank proves successful after a trial period, MakerDAO believes MBPTrust could be applied to other banks as well.

Governance Issues

The HVBank proposal passed with 87.24% approval, with ACREinvest, casting 3,100 MKR votes, stating:

There are many reasons to like this proposal as real-world community banks are seeking other solutions, and such innovation will open doors for other institutions to imagine what could happen beyond TradFi.

Blockchain data analytics firm Flipside Crypto, with 9,005 MKR votes, also commented:

The proposal provides MakerDAO with a way to diversify collateral assets, utilizing USDC as a productive asset, which MakerDAO urgently needs. Flipside supports this proposal.

The founder of Blockworks pointed out that MakerDAO's bear market experiment is leading DeFi to the next level and setting up the next bull market catalyst for other DeFi protocols as well.

Not everyone agrees with the idea of DeFi collaborating with traditional financial entities. Chris Blec, founder of DeFi Watch, cast 4,218 MKR votes representing 3.1% of voting power, and expressed to The Block:

In today's regulatory environment, any third-party transactions bring higher risks to MakerDAO. What if regulators force HVBank to freeze everything, cut ties with MakerDAO, and take all the money?