MakerDAO to use $500m for treasury and bond investments

Recently, MakerDAO came up with a plan to reallocate as much as $500 million of its stablecoin’s collateral reserves and use them for making short-term investments in the US Treasury and corporate bonds. Maker Protocol’s governing body believes that doing so would provide the protocol with low-risk additional yield, which would be appreciated and preferable, especially at this time when the crypto industry remains troubled by uncertainty.

What will be done with the funds?

The DAO voted yesterday, October 6th, to approve the initial transaction of $1 million. This came after an executive vote from the project’s tokenholders, and the remaining funds are meant to follow after the community gives its confirmation for that portion of the total amount.

As for how the funds will be used, 80% is meant to go into the US Treasury for short-term investments. Around $160 million is allocated to the 0-1y US Treasury iShares ETF, while $240 million will be invested into Treasury iShares ETF from BlackRock for the length of 1-3 years.

That still leaves the remaining $100 million, which is meant to be used for investment-grade corporate bonds. These will be provided by Baille Gifford, an investment management firm that the project chose. The decision to split the funds in this way was made by MKR holders, with 68,250 MKR representing 57.67% of the entire voting pool, opting for the 80:20 split, where the majority would go into the US Treasury’s iShare ETF.

Why is MakerDAO doing this?

The move came as part of the project’s plan to diversify its own holdings, currently collateralizing the DAI stablecoin. At the same time, it will allow the DAO to use idle funds and provide the entire protocol with some extra yield, without posing a risk to the DAI peg. In other words, it is the most rewarding way to use extra funds with the lowest amount of risk attached.

The stablecoin, DAI, is used by the MakerDAO project to allow it to lend money to users in a way where the repayable amount can avoid being too badly hit by volatility. With the crypto market being extremely volatile even at the best of times, and especially during the years such as 2018 and 2022, the DeFi protocol had little choice but to seek out the safest solutions in order to avoid the risk that would, otherwise lead to it collapsing, similarly to the Terra ecosystem earlier this year.

Fortunately, the DAI’s community and the governing body have had a better grasp of the dangers of the current market, and they had better luck navigating it. Now, the new announcement pushed the stablecoin in a different direction from what some recent comments suggested or even recommended, such as depegging DAI from USDC, as proposed by MakerDAO’s own co-fonder, Rune Christensen, in late August.

Related

• MakerDAO votes on partnering with a traditional bank
• MakerDAO Gets 1.5% Interest on USDC from Coinbase
• MakerDAO community turns down proposals to have a centralized body