Context of the Proposal
On March 16, MakerDAO made waves in the financial waters by approving an impressive proposal that escalates its Treasury bond portfolio by a staggering 150%—from a relatively modest $500 million to $1.25 billion. This bold move comes on the heels of turmoil in the crypto landscape, particularly after the Dai (DAI) stablecoin lost its dollar peg during a fit of market volatility on March 11. Talk about a dramatic twist!
Details of the Proposal
The proposal aims to expand Maker’s footprint in the realm of real-world assets, particularly ‘high-quality bonds’. With a whopping 77% backing from Maker’s delegates, the plan is set in motion to inject $750 million worth of USDC into the Protocol’s Security Module (PSM). The endgame? More US Treasury bonds to bolster liquidity supporting DAI.
Execution Strategy
But how does MakerDAO plan on executing this ambitious strategy? Over the next six months, they intend to purchase these bonds in 12 equal $62.5 million slots, biweekly. This strategy not only diversifies their liquid assets but is designed to pull in a net annual yield between 4.5% and 4.6%. Not too shabby for a decentralized finance initiative, if you ask me!
Revenue Potential
According to MakerDAO, this move opens up new streams of revenue. As mentioned in their proposal, the trading costs associated with these investments may further boost the revenue from their PSM assets. With Federal Reserve data showing yields for 10-year bonds floating around 3.64% as of March 14, it seems like the timing is ripe for such a strategic pivot.
The Bigger Picture: Impacts and Reactions
It’s important to remember that this isn’t a stand-alone venture. Maker’s new strategy builds on an existing $500 million Treasury allocation, managed since October 2022 by the DeFi asset adviser, Monetalis Clydesdale. Despite the financial gain of approximately $2.1 million in lifetime fees, some voices in the governance forum have raised eyebrows, noting Maker has yet to see any payment related to the initial investment. In a world as intricate as cryptocurrency, one might wonder if all the pieces are truly in place.
Market Backdrop
The recent fallout from the collapse of Silicon Valley Bank had ripples that were felt far and wide. The ensuing panic saw several stablecoins—including USDC and DAI—fall off their pegs. In a subsequent Twitter thread, MakerDAO indicated its community was actively pursuing proposals to pivot its stablecoin exposure towards more stable avenues like U.S. Treasurys—a clear effort to breathe life back into DAI’s fragile collateral base.
