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MakerDAO Invests $500 Million In Treasuries And Bonds

In an effort to offer the protocol (MakerDAO) with low-risk extra return, $500 million of the funds now collateralizing the Dai (DAI) stablecoin will be reallocated to US Treasuries and corporate bonds.

07 Oct 2022 By: Divya Behl
MakerDAO Invests $50

MakerDAO, the Maker Protocol's governing body, has taken the first 

step in its plan to reallocate $500M of its stablecoin Dai collateral reserves into short-term US Treasury and corporate bonds.

Following an executive vote by Maker token holders, the decentralized autonomous organization (DAO) voted on Oct. 6 to authorize a pilot transaction of $1 million. The remaining funds will be reallocated immediately after community approval.

The majority of the $500 million will be invested in short-term US Treasuries, with $160 million allocated to the BlackRock 0-1y US Treasury iShares ETF and $240 million placed in the BlackRock 1-3y US Treasury iShares ETF.

The remaining $100 million will be allocated to investment-grade corporate bonds offered by investment management company Baillie Gifford.

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

MakerDAO explored the concept as a method to diversify the holdings presently collateralizing DAI. Meanwhile, also allows the DAO to deploy unused funds and offer extra income to the protocol without putting the DAI peg or MakerDAO's solvency at risk.

DAI is the stablecoin used by MakerDAO to allow the DeFi protocol to lend money to users so that the repayable amount is not subject to the volatility that is common in crypto markets.

The majority of DAI's $9 billion collateralization pool is now made up of USD Coin, a stablecoin backed by cash and short-dated US bonds. Furthermore, DAI is now over-collateralized by 134.87%.

While fixed-income investments have a low rate of return, they have historically been regarded as a "safe haven" for conventional investors during bear markets due to their consistent income stream. Also, in the case of bankruptcy, fixed-income investors are reimbursed before equity stockholders.

Yesterday's statement pushes DAI in a different direction than previous comments by MakerDAO co-founder Rune Christensen on Aug. 27. Despite regulatory worries, Rune argued for decoupling DAI from USDC and transitioning to a truly decentralized cryptocurrency.

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