MakerDAO proposes a $750 million increase in US Treasury investments

By: Henry Felix

MakerDAO proposes a $750 million increase in US Treasury investments

March 17, 2023 6:03 AM

The emergency plan raises MakerDAO's holdings of U.S. bonds by 150%, with the goal of diversifying the collateral risk of the Dai stablecoin.

MakerDAO, a lending system, and stablecoin issuer, proposed on March 16 to boost its portfolio holdings of US Government bonds by 150%, from $500 million to $1.25 billion.

The proposal seeks to broaden the protocol's exposure to real-world assets and "high-quality bonds," following the loss of the Dai (DAI) stablecoin's $1 peg during market instability on March 11. 77% of Maker's delegates voted in favor of raising the debt cap by $750 million.

"With this new deployment, MakerDAO would utilize $750 million of USDC in the PSM to buy more US Treasury bonds, diversifying its liquid assets that support DAI."

The bonds will be purchased fortnightly over a six-month period with equal maturities, totaling 12 slots of $62.5 million each. MakerDAO forecasts a net yearly yield of 4.6% to 4.5% after custody under the approach. Trading fees might also enhance Maker's revenue stream, according to the proposal.


During the next six months, Maker's new strategy ladder: Source MakerDAO

Maker would be able to "take advantage of the current yield environment, and generate additional revenue on Maker's PSM Assets in a flexible, liquid manner," according to the proposal. According to Federal Reserve data, the 10-year constant maturity Treasury yield was 3.64% on March 14.


Market yield on 10-year constant maturity US Treasury securities: Source FRED

The action extends until October 2022 a $500 million US Treasury allocation that Monetalis Clydesdale, a decentralized finance (DeFi) asset manager, is currently managing. "By January 2023, this investment approach had generated $2.1 million in lifetime fees," MakerDAO claimed.

However, participants at the governance meeting stated that "Maker has not yet received any money from the first half billion DAI" from Monetalis. Delegates also said that questions asked on Maker's Discord and the governance forum were not answered quickly, giving them too little time to look over the plan.

The failure of Silicon Valley Bank on March 11 shook markets and resulted in the depreciation of various stablecoins, including USD Coin (USDC). Dai, too. MakerDAO's community was working on suggestions to convert its stablecoin exposure to money market instruments, such as US Treasurys, in a March 13 Twitter thread regarding the volatility, "with the objective of diversifying DAI's liquid collateral."