Back to the list

MakerDAO Voting On A Partnership With A Traditional Bank


coinculture.com 08 July 2022 03:15, UTC
Reading time: ~3 m

MakerDAO is voting on a plan that will bring a traditional bank into its ecosystem for the first time, allowing the bank to borrow against its assets using decentralised finance (DeFi).

Currently 83% of voters are in favour of the proposal. Voting ends at 12pm ET on July 7.

The proposal entails building a vault with 100 million Dai (DAI) for Huntingdon Valley Bank (HVB) as part of a new collateral type in the Maker Protocol.

This effectively allows the Maker Protocol to begin offering real-world loans to borrowers through a fully backed traditional institution by meeting the bank’s standards.

The first collateral integration from a US-based bank in the DeFi ecosystem is getting closer.

The Maker Governance votes to add RWA-009, a 100 million DAI debt ceiling participation facility proposed by the Huntingdon Valley Bank, as a new collateral type in the Maker Protocol pic.twitter.com/fOdusdjCFS

— Maker (@MakerDAO) July 4, 2022

The decision to integrate the bank comes only days after the MakerDAO members voted in favour of spending $500 million DAI on treasuries and corporate bonds.

MakerDAO governs the Maker Protocol, which issues U.S. dollar-pegged DAI stablecoins in exchange for user deposits of Ether (ETH) and nearly 30 other cryptocurrencies. Huntingdon Valley Bank (HVB) is a Pennsylvania-based traditional bank that was established in 1871.

The deal with HVB is important for the Maker Protocol because it is not currently permitted to issue U.S. dollar loans directly to borrowers. MakerDAO will, however, establish a separate organisation to facilitate interaction with the traditional bank.

First, MakerDAO will set up a Multi-Bank Participation Trust (MBPTrust) in Delaware to  link the capital available at HVB with the Dai stablecoin that Maker provides.

The trust would oversee DAI minting and destruction from the vault, as well as manage commercial issues with HVB.

At first, HVB would own 50% of the loans issued through this scheme, but would petition MakerDAO to incrementally reduce its ownership down to a minimum of 5%. The remainder would be owned by MBPTrust. This measure would reduce the bank’s risk, as it would be issuing loans through the Maker Protocol in under Pennsylvania law.

Maker Protocol (MAKER), which has been looking for ways to survive the bear market, would be able to earn revenues through vault stability fees associated with maintaining the vault and minting DAI.

Revenue would also come from yield, which is expected to be as much as 75 basis points above the 30-day average Secured Overnight Financing Rate (SOFR) of 0.083%.

HVB benefits by effectively raising its legal lending limit above $7 million per borrower.

Assuming the HVB integration is a success after a period of time, MakerDAO believes the same MBPTrust could be used to onboard other banks.

Back to the list