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France’s third-largest bank, the Société Générale, has taken a step into decentralized finance, after initiating direct interaction with DeFi Protocol MakerDAO. The bank has over 29 million clients and is one of the largest banks to interact with DeFi.
The Société Générale Proposal
This week, the French bank submitted a proposal for the Decentralized Finance lending platform MakerDAO to accept on-chain bond tokens that the bank issued as collateral for a stablecoin DAI loan. The loan has been mediated between several legal entities and other third parties and is equivalent to around $20 million in DAI. This is potentially one of the largest steps taken towards the institutional adoption of Decentralized Finance.
Société Générale-Forge, a regulated subsidiary of the bank which specifically focuses on digital assets, submitted the proposal. Société Générale-Forge has been experimenting with blockchain and blockchain assets for a number of years and has already issued bond-backed tokens on Ethereum in 2019.
A Pilot Use Case
Société Générale-Forge (SocGen) wrote in the proposal submitted to MakerDAO that the loan would serve as a “pilot use case,” with one of the goals of the project stated to be to help shape and promote an experiment under France’s legal framework.
The tokens issued by SocGen were issued in 2020, with a fixed rate of 0%, and mature in 2025. They have a AAA rating from Moody’s and Fitch, with both the bond tokens and the DAI recognized by French law.
Organizing Legal Framework
Both MakerDAO and SocGen have significant experience when it comes to smart contracts, but the real barrier is in implementing the legal framework to avoid any potential conflict that could arise when real-world organizations interact with self-governing on-chain systems. A total of six entities will be a party to organizing any and all legal frameworks.
SocGen, SocGen Forge, the MakerDAO protocol are the primary entities. The DIIS group will serve as a security agent, which is a requirement under French law. The security agent will enforce the terms of the loan according to French law. MakerDAO will have its legal representative, which it has yet to appoint, and there will also be an as-yet-unnamed third party that will help facilitate DAI loans to Dollars. This party can either be a centralized exchange or a custodian service.
MakerDAO contributor PaperImperium took to Twitter to talk about MakerDAO’s options, stating,
“The Maker Representative will probably be one of the legal entities we have been experimenting with. I’m not sure if we have settled on which one, but we have several options of structure and jurisdiction.”
Proposal Under Consideration
The head of MakerDAO’s Real World Finance Unit, Sebastien Derivaux, stated while replying to the proposal that it “doesn’t have a good risk/reward” and noted that it would require a considerable amount of developmental resources to pass. However, he also pointed to the ancillary benefits of the proposal, more specifically the proposal having the legal architecture in place to accept other bank bonds.
“This collateral should be seen as step one of what is next to come. Integrating all publicly traded bonds and providing repo. Quite a huge market.”
Currently, the proposal is in the discussion phase and will be put to a formal vote during the coming weeks.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.