MakerDAO Faces Revenue Decline as Loan Demand Falls in Q3 2022

Significant Revenue Drop

MakerDAO, the governing body of the Maker Protocol, has experienced a substantial revenue decline in the third quarter of 2022, attributed to a decrease in loan demand and an absence of significant liquidations. According to an October 13 tweet from Messari analyst Johnny_TVL, the DAO’s revenue plummeted to just over $4 million, representing an 86% decline compared to the previous quarter.

First Net Income Loss Since 2020

This downturn marks MakerDAO’s first quarter of net income loss since 2020, underscoring the challenges posed by a volatile crypto market. The two primary assets driving revenue, Ether (ETH) and Wrapped Bitcoin (wBTC), have performed poorly, with revenue from ETH-based assets dropping by 74% and revenue from BTC-based assets decreasing by 66%.

Collateral and Lending Challenges

Borrowers traditionally use these cryptocurrencies as collateral for loans of the Dai (DAI) stablecoin, which provides some protection against market volatility but also incurs interest costs. The analyst noted a significant decrease in MakerDAO’s collateral ratio, which has fallen from 1.9 to 1.1 since last year, further complicating the landscape for loan issuance.

Constant High Expenses

Despite a sharp drop in revenue, MakerDAO’s expenses remained markedly high at $13.5 million, a mere 16% reduction from the previous quarter. This stark disparity highlights one of the critical issues facing the DAO as it seeks to navigate economic pressures.

Proposed Investment in Treasuries and Bonds

In a bid to bolster its financial position, MakerDAO is exploring ways to increase yields from the assets it holds as collateral. It has initiated a proposal to invest $500 million in treasuries and bonds, aspiring to secure low-risk, additional yield.

Growth in Real World Asset Loans

One bright spot amid the financial turbulence has been the growth of Real World Asset (RWA) backed loans, which now constitute 12% of MakerDAO’s total revenue. The third quarter of 2022 saw the successful rollout of a significant RWA-backed loan to Huntingdon Valley Bank (HVB), which involved creating a vault with 100 million DAI. This initiative introduces a new collateral type into the Maker Protocol, enabling additional revenue generation through vault stability fees tied to maintaining the vault and minting DAI.

Potential for Future Collaboration

The partnership with HVB not only enhances MakerDAO’s revenue prospects but also allows the bank to expand its legal lending limit. If successful, this model may encourage other banks to engage with the Maker Protocol, fostering further growth.

Conclusion

As MakerDAO navigates through this challenging quarter, the focus on adapting to current market conditions and exploring innovative revenue channels will be vital. The growth of RWA-backed loans and the proposed treasury investments represent crucial strategies for the DAO to stabilize its operations and secure its position in the evolving decentralized finance landscape.