On Thursday, October 6 DeFi Protocol Maker DAO, a self-proclaimed decentralized autonomous organization, announced it had begun the process of moving $500 Million of its funds into a combination of US Treasury bonds and corporate bonds.
This blockchain news intersects with traditional financial news, as the Maker DAO decision makes way for a merge between the two parallel ecosystems of DeFi and TradFi – something that many experts and professionals across the two sectors have reflected on more recently than perhaps ever before. There has been a developing conversation around more DeFi and TradFi cooperation, as a combination of the two has shown the potential to advance global business and economics across all industries if implemented collaboratively.
Inside Maker DAO Protocol And The Recent Decision
Maker DAO launched on the Ethereum blockchain network in 2015. It is described as a decentralized protocol which supports the DAI stablecoin and its collateralized crypto borrowing and lending platform. In the loan system implemented on the platform, individuals are able to lock ETHER, the native currency for Ethereum, into smart contracts and access loans issued in DAI. The more ETH an individual locks into the protocol, the greater the amount of the loan they are able to access.
The Maker DAO community is said to have the belief that the allocation of DAI to traditional investment vehicles like US Treasuries and bonds, could promote the usability of digital assets in the TradFi space. The decision is also reportedly seen by its community as a move which extends the DAI’s influence beyond just the digital currency space.
Details Into The Maker DAO Diversification
The exact breakdown of the $500 million dollar move into US Treasuries and corporate bonds has it to where 80% has been allocated to short-term US Treasuries, and the remaining 20% is reportedly allocated to corporate-grade investment bonds. Traditionally individuals and entities of all sizes invest in treasuries and such bonds in order to hedge for a dependable future stream of capital, particularly when a market is volatile or low performing.
A statement released by Maker DAO suggests the community decision was also influenced by a desire to diversify its holdings and also limit exposure of any one particular asset. The decentralized protocol also believes the move will extend the revenue and balance sheet of the DAO organization.
A Plan For Continued Growth
Every company and individual around the cryptocurrency and decentralized finance space, and outside of it, witnessed the collapse of the Terra Luna ecosystem and its UST stablecoin back in early May. While Maker DAO is an overcollateralized stablecoin, soft-pegged to the US Dollar, and not an algorithmic stablecoin as UST was designed as, the collapse could only offer lessons and perhaps help encourage the community to diversify and see to it that the larger portion of any part of its ecosystem is isolated to one or two asset bases.
Regardless of whether or not the Terra Luna news had any influence on the decision of the organization to diversify the assets of its decentralized protocol and economy even more, Maker DAO has already begun the movement of its funds. DeFi asset advisor Monetalis has already completed an initial deployment of $1 million in preparation to fulfill the planned move to the decided traditional finance mechanisms – $500 million in Treasuries and corporate bonds.