MakerDAO Diversifies Liquid Collateral With $750M U.S. Treasury Investment Proposal

MakerDAO, a lending protocol and stablecoin issuer, decided on March 16 to expand its portfolio holdings of United States Government bonds from $500 million to $1.25 billion.

The idea intends to strengthen the protocol’s exposure to real-world assets and “high-quality bonds” after its Dai stablecoin lost its $1 peg on March 11 due to market volatility. The debt ceiling increase of $750 million was authorized by 77% of Maker’s delegates.

According to a representative from MakerDAO, the company plans to use $750 million of USDC in the PSM to buy additional US Treasury bonds. This move is intended to diversify the company’s liquid assets that support DAI.

According to MakerDAO’s plan, the bonds will be purchased with equal biweekly maturities over a six-month period, with a total of 12 slots worth $62.5 million each. The company anticipates an annualized yield of 4.5% to 4.6% after taking into account custody. In addition to this yield, MakerDAO’s trading costs could also increase the company’s revenue stream.

The plan would enable Maker to take advantage of the current yield environment and generate additional revenue on Maker’s PSM Assets in a flexible and liquid manner. According to data from the Federal Reserve, 10-year constant maturity Treasury rates were 3.64 percent on March 14.

MakerDAO has extended its current $500 million U.S. Treasury allocation, which is managed by decentralized finance (DeFi) asset adviser Monetalis Clydesdale since October 2022. According to MakerDAO, this move is expected to bring in ~$2.1 million in lifetime fees as of January 2023.

Under MIP65, MakerDAO deployed ~$500 million in short-term US treasury bond ETFs.

As of January 2023, this investment strategy has brought ~2.1 million in lifetime fees to the Maker Protocol.

→ https://t.co/fa2JVuvoOQ pic.twitter.com/jDA6ExScgE

— Maker (@MakerDAO) March 7, 2023

The governance forum participants, however, stated that Maker has yet to receive any money from the first half billion DAI from Monetalis. Delegates also claimed that they were given little time to study the plan because inquiries in Maker’s governance forum and Discord needed to be swiftly addressed.

The failure of Silicon Valley Bank on March 11 caused market panic and resulted in the depeg of a number of stablecoins, including USD Coin and Dai. On March 13, MakerDAO posted a Twitter thread regarding the volatility of its stablecoin, DAI, and mentioned that its community was developing proposals to transition its stablecoin exposure to money market investments, specifically U.S. Treasuries, in order to diversify the liquid collateral of DAI.