MakerDAO Invests $500 Million in Bonds

MakerDAO has decided to put $500 million of the reserves backing the DAI stablecoin into short-term US Treasury and corporate bonds. The Decentralized Autonomous Organization (DAO) voted on Oct. 6 to approve a $1 million pilot transaction.

US Treasury Bonds

About 80 percent of the $500 million goes to short-term US Treasuries. MakerDAO is putting $160 million into the US Treasury iShares ETF (IB01) and $240 million into BlackRock’s 1-3y US Treasury iShares ETF (SHY). The last $100 million will be released for high-quality corporate bonds from Baillie Gifford.

The distribution was ultimately approved by MKR’s token holders, with 57.67 percent of the tokens ultimately voting for the 80-20 distribution. The idea of ​​MakerDAO is to build a more diverse portfolio with the reserves in this way and provide the protocol with extra returns, without running a lot of risk.

Where are the reserves now?

Most of DAI’s $9 billion in reserves are currently in USD Coin (USDC), a stablecoin backed by cash and short-term US Treasuries. At the time of writing, DAI’s collateral accounts for 134.87 percent of outstanding stablecoins. In that sense, it is a fairly well-backed stablecoin.

In principle, government bonds yield little or nothing, but they are safe. The US government will always pay its dollar debts because they have the monopoly on the dollar. Isn’t there enough? Then they will print. Also when it comes to corporate bonds, bondholders are paid first, before the shareholders’ turn.

In this way, bonds offer more security than shares or other forms of investment. DAI chooses this new form of investing to move away from the high reliance on Circle’s USD Coin.

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