Societe Generale proposes historic $20M DAI loan in exchange for bond tokens

One of France’s leading banks has turned to decentralized finance pioneer MakerDAO to propose the submission of bond tokens as collateral for a loan of the DAI stablecoin.

The historic proposal called “Security Tokens Refinancing” was submitted to Maker’s governance forums by the international bank on Oct. 1. It would be the first major collaboration between a traditional bank and a DeFi protocol and could open the door for closer integration between the two sectors.

Societe Generale (SG) labeled it as the “first experiment at the crossroads between regulated and open source initiatives.”

The bank has proposed that it provides “OFH” security tokens (obligations de financement de l’habitat) which are characterized as covered bonds under French law, and backed by home loans.

These would be used to collateralize a $20 million loan in Maker’s DAI stablecoin which would be mediated by a number of legal entities and mature in six to nine months.

The Ethereum-based security tokens were issued in May 2020 with a nominal amount of 40 million Euro ($46.3M) and a fixed rate of 0%. They mature in May 2025 and have the top credit rating of AAA by rating agencies Moody’s and Fitch.

MakerDAO founder Rune Christensen said he had “no clue” about this proposal, adding that “this is one of multiple recent examples in Maker Governance of how the post-foundation model of organization is proving to be more scalable.”

Industry observer “DCInvestor” commented on the potential impact of deals such as this on Ethereum and its position as a global settlement layer:

“Societe Generale with their attempt to get their on-chain assets usable in Maker and you’re wondering if Ethereum will become a global settlement layer it’s happening, now.”

SG stated that the loan would be a “pilot use case,” with the goal of helping to “shape and promote an experiment under the French legal framework,” and “enhance a profitable service and foster liquidity for digital bonds.”

SG Forge, a regulated subsidiary of the bank that deals with crypto assets, is managing the proposal which is based on the open-source framework CAST (Compliant Architecture for Security Tokens).

The legal framework for the deal is complex as it needs to integrate an institutional financial organization with a decentralized governance-based network. A flowchart provided by the bank details six separate entities involved in the process. These include the registrar Societe Generale Forge, the bank itself SG, MakerDAO, a legal representative for the DeFi protocol, security agent DIIS Group, and a third-party exchange agent.


Related: Senator Warren’s office confuses MakerDAO for failed 2016 project The DAO

Pseudonymous MakerDAO community member ‘PaperImperium’ commented on the proposal in the forum:

“Maker and SocGen-Forge are standing at the precipice of financial history. What a time to be alive.”

The proposal is currently being discussed and will move to a formal governance vote in the weeks to come.

It is not the first time Societe Generale has dabbled with Ethereum-based security tokens. In April 2019, the bank’s SG Forge unit issued a 100 million Euro bond as an OFH security token on Ethereum.


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Which stablecoins were actually ‘stable’ during this week’s sudden Bitcoin price crash?

A sharp sell-off across the cryptocurrency market Tuesday—that saw top tokens like Bitcoin (BTC), Ether (ETH), Cardano (ADA), and Solana (SOL) fall by double-digital percentages—created a venue for stablecoins to prove their worth.

The fixed-price cryptocurrencies offered interim protection to traders from the notorious crypto price volatility. They did so by almost maintaining their one dollar-peg and offering sufficient liquidity to traders that looked for a safety net during the market decline.

Blockchain analytics service CryptoQuant reported dramatic spikes in the stablecoin transfers as the cryptocurrency market cap fell from $2.38 trillion to $2.103 trillion on Tuesday.

For instance, Tether, the leading stablecoin by volume, processed $10.51 billion worth of transactions on Tuesday compared to $4.02 billion on Monday.

The mean of all stablecoins transfer. Source: CryptoQuant

Similarly, the second-largest stablecoin USDC, backed by Circle, reported $5.728 billion worth of transfers on Tuesday versus $3.27 billion in the previous session, logging a 74% spike.

At the same time, the net stablecoin supply in circulation remained relatively idle, around $67 billion, showcasing adequate liquidity against demand even in the face of a brutal crypto market decline. As a result, many top stablecoins maintained their 1:1 dollar peg despite logging minor price drifts.

Centralized stablecoin more dependable

Among the top-10 stablecoins that showed minimal average deviation from their one dollar peg included six centralized, two mixed, and two algorithmic projects.

USDC demand pushed its average valuation by about $0.00196 above a dollar, closely followed by Paxos (PAX), which traded $0.00203 above the same peg.

Top 10 stablecoins ranked according to their average deviation from the US dollar. Source: Larry Engineer’s stablecoin tracker

Similarly, Binance exchange’s native stablecoin BUSD and MakerDAO’s DAI maintain their stability via a dynamic system of Collateralized Debt Positions (CDPs), autonomous feedback mechanisms, and a variety of user incentive structures, was up $0.00244 from its dollar peg. 

Tether’s wider demand across the cryptocurrency spectrum also pushed its average deviation up by $0.00244.

Related: Tether promises an audit in ‘months’ as Paxos claims USDT is not a real stablecoin

Meanwhile, TrustToken’s TUSD, Stable Universal’s HUSD, and Terra’s UST drifted $0.00249-0.00385 from their dollar valuation. FRAX and FEI posted decoupled from their dollar peg by jumping $0.00404 and $0.00474 above it, respectively.

The data snapshot was taken 24 hours after the Sept. 7 crypto market crash.

Stablecoin collapse good for Bitcoin? 

But potential stablecoin risks have also attracted the attention of top U.S. officials, including Treasury Secretary Janet Yellen and Boston’s Federal Reserve’s President Eric Rosengren.

In July, Yellen “underscored the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place,” in a meeting with the heads of the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

Related: Stablecoin growth could affect credit markets, rating agency warns

Meanwhile, Rosengren called Tether a potential challenge to financial stability.

In July, a paper released by Fitch Ratings also noted that collateralized stablecoins could trigger short-term credit market contagion. Excerpts:

“A sudden mass redemption of [tether] could affect the stability of short-term credit markets […] particularly if associated with wider redemptions of other stablecoins that hold reserves in similar assets.”

But what does a stablecoin market collapse could mean for Bitcoin and similar digital assets? Mike McGlone, the senior commodity strategist at Bloomberg Intelligence, said it would benefit Bitcoin, in particular.

“If the whole market collapse, there is only one safe store of value left: Bitcoin.”

For more about the potential risk of stablecoins, check out Cointelegraph’s latest video report.

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