Additional investment of $1.28 billion in US Treasuries
MakerDAO, a major player in decentralized finance (DeFi), announced on the 1st that it has started voting on a proposal aiming to allocate a new 178 billion yen ($1.28 billion) as an investment in US Treasuries.
The Maker Protocol will issue and manage the stablecoin “DAI” and will also function as a lending platform. MakerDAO is a decentralized autonomous organization (DAO) that decides the operating policy of this protocol by voting of the owners of the governance token “MKR”.
From October 2022, MakerDAO has started an investment strategy for the stablecoin “USDCoin (USDC)”, which accounts for about half of the DAI reserve (equivalent to 580 billion yen at that time). This aims to diversify the liquidity that underpins DAI and take advantage of the current yield environment to generate additional returns on Maker assets in a more flexible and liquid manner.
Three-month Treasury bills currently yield 5.28%, up from 4.12% on Dec. 1, 2022, according to Federal Reserve data. This rise is thought to be due to the rise in the inflation rate and the tightening monetary policy of the United States.
The initial strategy invested 72.5 billion yen (500 million DAI) in US Treasury bills (80%) and corporate bonds (20%). And in March 2023, it made an additional investment of 100 billion yen ($750 million).
Under the new proposal, an additional 1.28 billion DAI would be used to purchase US Treasury bills with various maturities ranging from zero to six months. Coinbase, a US crypto exchange, and Galaxy Digital Trading Cayman, a US crypto bank, will be responsible for exchanging stablecoins for the US dollar.
If the proposal is approved, Celadon Financial Group will act as the broker, and Wedbush Securities will hold the Treasuries in segregated accounts under the name of TACO. TACO is a limited liability foundation established in the Cayman Islands in 2022 to support Maker’s US Treasury buying strategy.
Profits from investments in US Treasuries will be distributed to the MakerDAO Protocol on a quarterly basis. Also, at the discretion of the DAO, the parties to the transaction may direct the sale of all assets or the return of proceeds to the MakerDAO Protocol.
connection:MakerDAO invests 72.5 billion yen in US Treasuries, etc.
Risks and countermeasures
The strategy is called “Project Andromeda” and BlockTower Capital Advisors LP is involved as arranger. BlockTower will receive a 15 basis point commission on the equity value of TACO accounts. and supervise and manage the assets in the TACO Account in accordance with the guidelines and instructions provided by TACO.
BlockTower Capital is an investment adviser registered with the U.S. Securities and Exchange Commission, and the contract form with TACO takes the form of “SMA (Separately Managed Account)”. operate. Under the SMA agreement, Blocktower is guaranteed a minimum aggregate fee of $1.8 million over two years.
While MakerDAO’s new strategy strengthens its credibility as the foundation underpinning DeFi, it may also create new risk factors. Risks associated with Project Andromeda include regulatory risk, concentration risk, exchange platform risk and US Treasury specific risk.
The picture of regulatory risk varies greatly across US federal, state, local and international jurisdictions. If TACO is found not to comply with these laws, rules and regulations, it could face significant fines and other regulatory consequences.
BlockTower has set provisions for obtaining a deposit of up to $2.5 million given the uncertain cryptocurrency regulatory environment in the United States. This will cover the burden of fines from regulators and additional procedures for regulatory compliance.
connection:MakerDAO (MKR) invests in US Treasuries to improve earnings and consider additional investments