MakerDAO’s $500M Investment To Bolster DAI Reserves

MakerDAO has invested $500 million of its reserves in traditional assets to diversify its balance sheet and strengthen the DAI stablecoin backing. 

Investing In Traditional Assets

Decentralized autonomous organization, MakerDAO has initiated $500 million from its reserves to be invested in traditional assets like the U.S. Treasuries and bonds. The DAO had previously voted on the decision where the majority of MKR token holders approved a $1 million pilot transaction conducted on Wednesday. The DAO has partnered with DeFi asset advisor Monetalis to process this investment. Monetalis will also form the acceptable legal framework for MakerDAO to continue interacting with traditional assets. 

Monetalis is allocating the $500 million equally between investment management firms Sygnum Bank and Baillie Gifford in two phases. In the first phase, Sygnum’s crypto-to-fiat gateway will be implemented to convert the $250 million worth of DAI stablecoin into USD to be invested into traditional assets. Sygnum, which is a digital asset bank has also made a separate announcement claiming that it was the lead partner in the $500 million diversification effort. 

Low-Risk Diversification

The fund rerouting has commenced, and the initial assets chosen for the investment include short-term US treasury bonds and investment-grade corporate bonds. Of the entire investment fund, around 80% will be allocated into treasury bonds, while the remaining 20% will be allocated to corporate bonds. Addressing the fund allocation, head of MakerGrowth, Nadia Alvarez commented, 

“The 80-20 split between treasuries and bonds remained the favored approach during the voting process. This showcases the opportunity associated with the move, and seeing such adamant support from the community is very exciting.”

According to the organization, the purpose is to bolster the MakerDAO balance sheet by dabbling in low-risk, high-liquidity traditional assets. The plan is to diversify the holdings currently collateralizing DAI, and also deploy unused funds towards raking in additional yield in a low-risk avenue that would not threaten the DAI peg or the MakerDAO solvency.

Stabilizing DAI

MakerDAO has been making the news in recent months due to its attempts to stabilize the DAI stablecoin. Its co-founder, Rune Christensen, even proposed an “Endgame Plan” in which DAI would be turned into a free-floating asset if the protocol cannot reach the 75% decentralized collateral threshold within three years. Christensen has been pushing for a while for the protocol to reduce its dependency on the USDC stablecoin. He had even revealed his plans of selling off $3.5 billion worth of USDC for ETH. Soon after, Coinbase submitted a proposal that could bring in $24 million annually for MakerDAO.

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.