Real-world assets are real! MakerDAO pays $1.5 million in taxes to Switzerland

MakerDAO's active expansion into real-world assets is evidenced by the fact that it has already paid $1.5 million in taxes to the Swiss government. While taxation is a cost of Real-World Assets (RWA) and a demonstration of MakerDAO's commitment to regulatory compliance, is there really no way to avoid paying taxes?

Buying and Selling Real-World ETFs Incurs Up to $1.5 Million in Taxes

According to a report by DLNews, MakerDAO, the issuer of stablecoin DAI, paid $1.5 million in taxes to the Swiss government after passing MIP65, a governance proposal in May 2022 to invest $500 million DAI in U.S. treasury bonds.

As reported earlier, with the assistance of asset advisory firm Monetalis, the funds were evenly distributed to Swiss digital bank Sygnum Bank and investment management company Baillie Gifford.

80% of the funds were invested in U.S. treasury bonds, with 40% in 0-1 year U.S. treasury bonds iShares ETF and 60% in 1-3 year U.S. treasury bonds iShares ETF. The remaining 20% was allocated to investment-grade corporate bonds issued by Baillie Gifford, including the U.S. Corporate Bond Index and the global authorized 1-5 year investment-grade corporate bonds.

In other words, MakerDAO's investment was made through purchasing ETFs. Allan Pedersen, CEO of Monetalis, explained in the report that Switzerland imposes a stamp duty of 15 basis points on offshore entities. This means a tax of 0.15% is levied when buying and selling ETFs. With a $500 million investment, the tax for a single buy/sell transaction amounts to $1.5 million.

Taxation is a Cost of Real-World Assets for RWA

Pedersen pointed out that taxation is a cost for MakerDAO to operate in the regulated real-world asset market, rather than the largely unregulated DeFi market.

He added:

For MakerDAO, it is important to demonstrate that it can comply with regulatory requirements when entering the real-world asset space.

Increased Investment Amount This Year, but Switching to U.S. Treasury Bills

Due to the continuous rise in U.S. treasury bond yields with the Federal Reserve's aggressive interest rate hikes, the proposer of MIP65 suggested in March this year to increase the investment amount from $500 million to $1.25 billion.

However, the additional $750 million is not invested in ETFs but divided into 12 portions of $62.5 million each, to be invested every two weeks in 6-month U.S. Treasury Bills and cycled continuously, aiming to generate income for MakerDAO in a low-cost and efficient manner.

One of the reasons for this shift is that there is no stamp duty when buying and selling U.S. Treasury Bills!

MakerDAO seems to have realized that the costs in the real world are quite high, and as the investment amount increases, so does the accumulated real-world cost!

U.S. treasury bonds are attractive! MakerDAO proposes to purchase an additional $750 million, bringing in over $3 million in annual income