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MakerDAO voting on $100M loan participation with Florida commercial bank

Crypto lending platform MakerDAO is voting on a new proposal to bring another commercial bank into its ecosystem, strengthening the connection between decentralized finance (DeFi) and traditional finance. 

As per MakerDAO’s governance forum, Cogent Bank — a Florida-based commercial bank — is proposing to participate with $100 million in loans to MakerDAO’s RWA Master Participation Trust.

The proposal is part of MakerDAO’s monthly governance cycle and seeks the same terms and conditions applied to Pennsylvania-based bank Huntingdon Valley Bank (HVB), which entered into a collateral integration with the crypto firm in July 2022, allowing the bank to borrow against its assets using DeFi.

Under the same conditions, MakerDAO would use its trust arm to link the capital available at Cogent Bank with MakerDAO’s Dai (DAI) stablecoin. The trust entity would be responsible for ensuring DAI minting and destruction from the vault, as well as managing the partnership with the bank.

Cash flow diagram, Maker Vault/Cogent Bank. Source: MakerDAO’s forum

The DeFi protocol would gain exposure to the credit market in at least eight categories, including commercial real estate, industrial, life insurance, consumer and public finance, with loans issued mostly on a fixed-rate basis.

Among the revenue sources for MakerDAO are fees associated with maintaining the vault, minting DAI, and yields. The benchmark 30-day average secured overnight financing rate stood at 4.15% as of Jan. 5.

Before its acquisition in 2018, Cogent Bank was known as Pinnacle Bank. The Florida bank has $1.3 billion of assets under management and is insured by the Federal Deposit Insurance Corporation. According to the company, loans originated in the first three quarters of 2022 totaled $602 million and summed $873 million in 2021.

In a bid to endure the crypto winter in 2022, MakerDAO disclosed a governance process for its first collaboration with a traditional bank, Huntingdon Valley Bank. At that time, the DeFi protocol announced plans to onboard other banks depending on the results of its integration with HVB.