MakerDAO, the protocol behind the leading over-collateralized stablecoin DAI, is looking to diversify its balance sheet into traditional assets. In doing so, $500 million will flow into “real world assets” (RWAs) and another $500 million will be invested in fixed income securities.
Stablecoins are a type of cryptocurrency that is pegged to a non-volatile asset (like the US dollar). These cryptocurrencies address the problem of inherent volatility risk in the crypto space. While the space is led by centrally-backed providers such as Tethers USDT and Circles USDC, there are also decentralized alternatives. MakerDAO’s model of over-collateralization has stood the test of time in this regard. Now, a step back into traditional finance is taking place.
The merge of two financial divisions
Maker is the oldest decentralized credit protocol with total deposited assets of over $7 billion. As a DeFi pioneer, the protocol manages any decisions about stability, transparency, and collateralization via a decentralized autonomous organization (DAO). Maker (MKR) token holders are allowed to vote on proposals, which are implemented on the blockchain in the next step. To earn a return on the weighty portion of unproductive USDC, the DeFi protocol will rely on traditional investment vehicles, according to a governance proposal.
Swiss crypto bank Sygnum was selected as the counterparty to diversify the maker balance. As a first step, The Crypto Valley firm is exchanging $250 million of assets in U.S. dollars, which will be invested in traditional assets through a portfolio of BlackRock’s fixed-income iShares ETFs.
The tide is turning
In 2021, the crypto industry received approximately $33 billion in venture capital investment – more than all previous years combined – according to Galaxy Digital. MakerDAO’s diversification into traditional assets represents a reversal of these one-way money flows. The move proves that bidirectional financial flows are not only possible, but can be executed quickly.
“This portfolio diversification is tangible proof of the innovation and real benefits that traditional assets bring to the DeFi revolution in finance. This collaboration is another step towards a world where technology is creating new and better financial models.” – Rajiv Sainani, European Growth Lead at MakerDAO
While the proposal passed with a clear majority, the larger movement toward traditional assets represents a step in the wrong direction for some critics. The nature of blockchain technology allows for fully automated transactions that do not need to rely on an intermediary. The move back to traditional finance, they argue, reintroduces these intermediaries, leading to a lessening of decentralization and an increase in risk.
