MakerDAO Increases US Treasury Bond Holdings by 150%

MakerDAO, a lending protocol and stablecoin issuer, has voted in favor of a proposal to expand the amount of United States Government bonds held in its portfolio by 150%, from $500 million to $1.25 billion. This would be a significant increase. This action is being taken with the goals of diversifying its liquid assets and earning a net yearly yield in the range of 4.6% to 4.5%. The remaining $500 million of USDC in the PSM will be handled by decentralized finance asset manager Monetalis Clydesdale. MakerDAO has plans to deploy $750 million of the USDC in the PSM to acquire further US Treasury bonds.

The bonds will be acquired with equal maturities, monthly, and over the course of a period of six months; the total number of slots will be 12, and each slot will be worth $62.5 million. After taking into account the costs of custody, the proposition is anticipated to result in a net yearly return of 4.6% to 4.5%. The income stream of MakerDAO can potentially benefit from an increase in trading expenses. This action will result in the continuation of Monetalis Clydesdale’s management of a current allocation of $500 million from the United States Treasury, which has been in effect since October 2022.

On the other hand, some people who took part in the governance forum had reservations about the proposition. They pointed out that MakerDAO has not yet received any money from Monetalis for the first half billion DAI, and they claimed that questions asked in Maker’s Discord and governance forum were not responded swiftly, which did not provide sufficient time to evaluate the proposal.

The failure of Silicon Valley Bank on March 11 caused widespread fear throughout markets and led to the depeg of a number of stablecoins, including USD Coin (USDC) and Dai. In response to this, MakerDAO said that its community was working on suggestions to convert its stablecoin exposure to money market instruments, such as U.S. Treasurys, “with the objective of diversifying DAI’s liquid collateral.”


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Compound Treasury Launches Borrowing for Institutions

Compound Treasury, an institutional DeFi yield platform backed by the Compound Finance protocol, announced on Wednesday a launch of a new crypto loan service that enables institutions to borrow from the platform using digital assets as collateral.

Accredited institutional investors can borrow US dollars or USD Coin (USDC) from the platform using Bitcoin, Ether, and supported ERC20 tokens as collateral.

Institutions will pay interest on their loans, generating yield for the DeFi users whose stablecoins Compound lent out.

Compound Treasury’s borrows and loans are managed by smart contracts, this means the entire position is transparent to the public (a clear difference from the centralized lenders).

Borrowing is offered with an open-ended term and no repayment schedule, providing clients with the flexibility to draw liquidity and repay balances as they see fit–for as long as they (borrowing) remain overcollateralized, Compound said.

The firm said the liquidity to support these loans is provided by Compound Treasury clients and the Compound Protocol. The collateral put up by borrowers will remain in the platform’s wallet for increasing transparency and the safety of customers’ funds.

DeFi Appears Defying Bear Markets

The development shows that Compound is trying to grab the market share of the institutional crypto borrowing business that recently stunned centralized competitors like Celsius Networks, Voyager Digital, BlockFi, among others.

The new borrowing service comes as a response to the leverage-tinged disaster that shook centralized crypto lending firms three months ago when their loans to Three Arrows Capital and others went bust.

The recent crash in the crypto markets had all sorts of ripple effects across different areas of the market. The DeFi lending market was one of the segments that was severely tested.

Some of the most prominent protocols that have been heavily hit include Terra, Celsius, and Three Arrows Capital, among others, as well as Anchor (ANC) – the once-popular crypto savings platform powered by Terra – whose total value locked (TVL) has dropped 99% in June.

However, there exists a small sector within DeFi (the likes of DeFi lending protocols that allow users to trade, borrow, lend, and invest without the need for centralized intermediaries) that has shown signs of resilience despite periods of stress.

DeFi lending protocols such as AAVE and Compound have continued to see healthy demand in both lending and borrowing activities of institutions. This is evidenced by the continued growth in total demand for loans.

This healthy demand comes amidst traditional financial institutional investors demanding greater exposure to DeFi. Several crypto hedge funds and venture capitalists have expressed interest in digital assets due to opportunities to participate in DeFi ecosystems.

The main reason for interest in digital assets is their high potential upside. The higher risk-adjusted returns being gained from DeFi lending protocols make sense for investors in the current inflationary environment.

Image source: Shutterstock


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SEBA Bank launches problems for users to earn yield on crypto

Customers of Swiss-based financial institution SEBA Bank will soon be able to earn yield on their crypto holdings.

In an Oct. 13 announcement, SEBA Bank said investors could use its Bitcoin (BTC) and Ether (ETH) lending services to generate yields as part of its SEBA Earn program. According to the bank, which focuses on offering digital assets, it planned on integrating support for other cryptocurrencies.

“As institutional interest in digital assets accelerates, investors have a broader appetite for crypto assets, with a particular interest in earning services like staking, DeFi and centralized crypto borrowing and lending,” said SEBA Bank CEO Guido Buehler.

SEBA said institutions would be able to earn returns through its staking and decentralized finance, or DeFi, problems, in addition to centralized lending and borrowing. Customers can currently generate yields on Polkadot, Tezos and Cardano, but the bank said it planned to add more proof-of-stake protocols in the coming months.

Related: First cryptocurrency fund approved in Switzerland

One of the first banks focused on digital assets to acquire a custody license in Switzerland, SEBA has been involved in the crypto space since its founding in 2018. Last year, the Bank of France selected SEBA to participate in its experimental digital Euro pilot project aimed at exploring the feasibility of central bank digital currencies in cross-border payments.