Lending protocol and stablecoin issuer MakerDAO passed a proposal on March 16 to increase its portfolio holdings of U.S. Treasury securities by 150%, from $500 million to $1.25 billion.
The proposal aims to increase the protocol's exposure to real-world assets and "high-quality bonds," following its Dai. The stablecoin lost its $1 peg during market volatility on March 11. The $750 million debt ceiling hike was approved by 77% of Maker’s delegates. The bonds will be purchased for the same term, every two weeks and over a six-month period, in 12 tranches of $62.5 million each. Based on the strategy, MakerDAO said it expects a net annualized rate of return of 4.6% to 4.5% post-escrow. The proposal states that transaction costs could also increase Maker’s revenue stream.
The proposal would allow Maker to “take advantage of the current yield environment and generate additional income on Maker’s PSM assets in a flexible, liquid manner,” it wrote. The yield on the 10-year fixed-maturity U.S. Treasury note was 3.64% on March 14, according to Fed data.
The move is an extension of the current $500 million U.S. Treasury allocation managed by decentralized finance (DeFi) asset advisor Monetalis Clydesdale since October 2022. “As of January 2023, this investment strategy has generated approximately $2.1 million in lifetime fees,” MakerDAO claimed.
However, participants in the governance forum stated that “Maker has not received any payment from Monetalis for the first 500 million DAI”. Representatives also complained that questions in Maker’s Discord and governance forums were not answered in a timely manner, leaving insufficient time to analyze the proposal.
On March 11, the collapse of Silicon Valley Bank triggered market panic and led to the decoupling of multiple stablecoins, including USD Coin and DAI. In a March 13 Twitter thread about volatility, MakerDAO noted that its community was examining proposals to shift its stablecoin exposure to money market investments such as U.S. Treasuries, “with the aim of diversifying DAI’s liquid collateral.”
