MakerDAO goes ahead with $500M investment in treasuries and bonds


MakerDAO, the governing body of the Maker Protocol, has taken the first step of its plan to reallocate $500 million of its stablecoin Dai (DAI) collateral reserves into short-term United States Treasurys and corporate bonds.

The decentralized autonomous organization (DAO) voted on Oct. 6 to approve a pilot transaction of $1 million following an executive vote from Maker (MKR) tokenholders, with the rest of the funds soon to be reallocated following confirmation from the community.

A majority, 80% of the $500 million, will be invested in short-term U.S. Treasurys, with $160 million allocated to the 0-1y US Treasury iShares ETF, and $240 million invested into the 1-3 year U.S. Treasury iShares exchange-traded fund (ETF) from BlackRock.

The final $100 million will be allocated to investment-grade corporate bonds provided by investment management firm Baillie Gifford.

The asset allocation was determined by the MKR holders, with 68,250 MKR representing 57.67% of the total voting pool opting for the 80-20 split.

MakerDAO has pursued the plan as a way to diversify the holdings currently collateralizing DAI while allowing the DAO to deploy unused funds and provide the protocol with additional yield without significant risk to the DAI peg or the solvency of MakerDAO.

DAI is the stablecoin used by MakerDAO to allow the decentralized finance (DeFi) protocol to lend money to users so that the repayable amount can avoid being subject to the volatility that is often seen within crypto markets.

Most of DAI’s $9 billion collateralization pool is currently made up of USD Coin (USDC), a stablecoin backed by cash and short-dated U.S. Treasurys. Additionally, DAI is currently overcollateralized at a ratio of 134.87%.

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While fixed-income investments offer a low rate of return, they are traditionally seen as a “safe haven” for conventional investors during bear markets due to their steady income stream and also because fixed-income investors are reimbursed before equity shareholders in the event of bankruptcy.

The announcement on Oct.6 pushes DAI in a different direction from recent comments from MakerDAO’s co-founder Rune Christensen on Aug. 27, who recommended the depegging of DAI from USDC and transitioning into a truly decentralized cryptocurrency amid fears of regulatory crackdowns.