The emergency proposal would increase MakerDAO’s U.S. bond holdings by 150%, aiming to diversify the Dai stablecoin’s collateral exposure.
Lending protocol and stablecoin issuer MakerDAO approved a proposal on March 16 to increase its portfolio of U.S. Treasury holdings by 150%, from $500 million to $1.25 billion.
The proposal aims to increase the protocol’s exposure to real-world assets and “high-quality bonds” after its DAI stablecoin lost its $1 peg during market volatility on March 11. The $750 million debt ceiling increase was approved by 77% of Maker representatives. A representative from MakerDAO told reporters:
“Under this new deployment, MakerDAO will use the $750 million USDC in the PSM to purchase additional US Treasuries, thereby diversifying its liquid assets backing DAI.”
The bonds will be purchased on the same tenor, biweekly and six-month basis, for a total of 12 tranches of $62.5 million each. Under the strategy, MakerDAO said it expects a post-custody net annualized return of 4.6% to 4.5%. Transaction costs may also increase Maker’s revenue stream, the proposal states.
The proposal would allow Maker to "take advantage of the current earnings environment and generate additional revenue on Maker's PSM assets in a flexible, liquid manner," it wrote.
The yield on the 10-year U.S. Treasury bond, which has a fixed maturity, was 3.64% on March 14, according to the Federal Reserve.
The move is an extension of the current $500 million U.S. Treasury allocation that has been managed by decentralized finance (DeFi) asset advisor Monetalis Clydesdale since October 2022. “As of January 2023, this investment strategy has resulted in approximately $2.1 million in lifetime fees,” MakerDAO claims.
However, participants in the governance forum stated that “Maker has not received any payment for the first 500 million DAI from Monetalis.” Representatives also complained that questions in Maker’s Discord and governance forums were not answered in a timely manner, so there was not enough time to analyze the proposal.
On March 11, the collapse of Silicon Valley Bank triggered market panic and caused multiple stablecoins, including USD Coin, to decouple from the U.S. central bank DAI. In a March 13 Twitter post about volatility, MakerDAO noted that its community is working on proposals to shift its stablecoin exposure to money market investments such as U.S. Treasuries “with the goal of diversifying DAI’s liquid collateral.”
