MakerDAO invests $500M in bonds and treasuries

MakerDAO, which is the governing body for the Maker Protocol has completed the first step in its plan, to reallocate $500,000,000 of its stablecoin dai ( DAI), collateral reserves into short-term United States Treasurys or corporate bonds.

After an executive vote by Maker ( MKR), tokenholders voted to approve the pilot transaction of $1,000,000, the decentralized autonomous organisation (DAO) voted to approve the transaction. The rest of the funds will soon be reallocated after confirmation from the community.

The majority of the $500 million will be invested in U.S. Treasurys. $160 million will go to the 0-1y US Treasury iShares Exchange-Traded Fund (ETF), and $240 million to the 1-3 year U.S. Treasury iShares Exchange-Traded Fund (ETF).

Investment management firm Baillie Gifford will allocate the final $100 million to corporate bonds of investment-grade quality.

The allocation of assets was determined by MKR holders. 68,250 MKR represented 57.67%, while the remaining voting pool opted for the 80-20 split.

MakerDAO pursued this plan to diversify its holdings of DAI collateral while allowing DAO to deploy unused money and provide additional yield to the protocol without significant risk to MakerDAO’s solvency or DAI peg.

MakerDAO uses DAI to enable the Decentralized Finance (DeFi) protocol lend money to users. This allows the repayment amount to be fixed and not subject to volatility, which is common in crypto markets.

The majority of DAI’s $9Billion collateralization pool is composed USD Coin ( USDC), a stablecoin backed with cash and U.S. Treasurys. DAI is currently 134.87% overcollateralized.

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Fixed-income investments have a low return rate, but they have been viewed as a “safe harbor” by traditional investors in bear markets. This is due to their steady income stream and the fact that fixed-income investors get reimbursed prior to equity shareholders in case of bankruptcy.

DAI’s Oct. 6 announcement is a departure from the Aug. 27 comments by Rune Christensen, MakerDAO’s cofounder and co-founder. He recommended that DAI be depegged from USDC in order to make way for a truly decentralized cryptocurrency amid regulatory concerns.

Opinion writer on 7trade7