In a surprising move, MakerDAO has voted to invest $500 million outside the DeFi ecosystem. As the issuer of the fourth largest stablecoin, Maker treasury is turning to US Treasuries and corporate bonds amid decreasing DeFi yields. With the Fed on the road to keep raising interest rates, is this the beginning of a new DeFi-TradFi pipeline?
How Much Does MakerDAO Hold in Funds?
Launched in 2017 by Rune Christensen, MakerDAO has been the cornerstone of decentralized finance. Through the use of smart contracts called Vaults, MakerDAO enables users to deposit a wide range of cryptocurrencies in order to mint the Dai (DAI) stablecoin.
Presently, Dai has a debt ceiling of $8.8 billion, with outstanding Dai at $6.78 billion. Most of the DAI collateral consists of USDC stablecoin (53%), while ETH and its wrapped version make up 23.5%. Wrapped Bitcoin (wBTC) contributes to Dai collateral at 7.3%.
Why is MakerDAO Integrating TradFi?
Over the last year, the Fed shifted the macroeconomic environment with interest rate hikes, reversing monetary policy from quantitative easing (QT) to quantitative tightening (QT). Consequently, not only did the dollar strength index (DXY) go up by +17.63% YTD, but US Treasuries yield went up as well.
US Treasuries represent federal government debt, which means they are perceived as the safest form of investment. After all, the government has the permanent tool of taxation to service its debt and is highly unlikely to default. Year-to-date, the 10-year treasury yield rate rose from 1.7% to 3.89%, the highest in a decade.
This is why MakerDAO voted to allocate 80%, out of $500 million, into US Treasuries, at 10-year maturation. The remaining $100 million will go into IG Corporate Bonds, managed by Baillie Gifford. The UK-based Monetalis Clydesdale…
