MakerDAO Governance has voted to approve Huntingdon Valley Bank proposal to open a stablecoin vault with real-world loans as collateral.
HVBank proposed establishing a trust company for the benefit of MakerDAO which will manage the loan assets. “While the facility will be structured with the intention of having the ability to onboard multiple banks, it is currently only intended to be used for HVB” statement from the official proposal. It also claims that the expected net yield of the trust will be a conservative 3.00%.
MakerDAO is a protocol enabling users to generate DAI, a stablecoin previously backed only by Ether. In 2019, MakerDAO switched to a Multi-Collateral DAI system, allowing multiple collaterals to back DAI. Maker vaults allow owners to deposit collateral to generate the DAI stablecoin. This time real-world loans will be the collateral. The vault will work as a system allowing for the bank to deposit loans on MakerDAO balance sheet as collateral and borrow DAI tokens. At the start, the bank will be allowed up to $100 million loan, but in the next 12 months the goal is $1 billion.
This collaboration seems mutually beneficial. The partnership is with a well-established US-based regulated bank and will enhance MakerDAO’s reputation and will help to connect DAI (MakerDAO native currency) with traditional financial system and back it up by real-world assets. HVBank will diversify its assets and will get extra resources for its operating activity. The main thing is that by creating the trust company and establishing the proposed relationship with MakerDAO it will be able to expand the bank’s lending limit which is now approximately $7M per borrower.
Although it all looks nice and 87% of all votes supported the proposal, not everyone was happy with the idea of working closely with traditional financial system. Chris Blec, the founder of DeFi Watch, was the largest Maker delegate (3.1% of voting power) voting against the proposal. He raised some concerns regarding regulatory risks:
“There is an existential risk that any of these third party deals pose to MakerDAO in the context of today’s regulatory climate. What if a regulator forces this bank to freeze everything, sever ties with the DAO and take all the money?” — Blec told The Block.
By the way this is not the first step MakerDAO has made toward the “real world”. Lately it has switched to a strategy of diversifying its treasury into real-world assets which bring higher yields than coins. Previous vault created holds Maker’s investment in liquid bond strategies. US short-term Treasuries and investment grade corporate bonds as the preferred options.