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MakerDAO passes proposal for $750M increase in US Treasury investments

Lending protocol and stablecoin issuer MakerDAO passed a proposal on March 16 to increase its portfolio holdings of United States Treasury bonds 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 (DAI) stablecoin losing its $1 peg during market volatility on March 11. The $750 million debt ceiling hike was approved by 77% of Maker’s delegates. A representative of MakerDAO told Cointelegraph:

“Under this new deployment, MakerDAO would use $750 million of USDC in the PSM to purchase more US Treasury bonds, thus diversifying its liquid assets that back DAI.”

The bonds will be purchased with equal maturities, biweekly and over a six-month period, totaling 12 slots of $62.5 million each. Under the strategy, MakerDAO said it expects to deliver a net annualized yield of 4.6% to 4.5% after custody. Maker’s revenue stream could also be boosted by trading costs, the proposal noted.

Maker’s new strategy ladder for the next six months. Source: MakerDAO

The proposal would allow Maker “to take advantage of the current yield environment, and generate further revenue on Maker’s PSM Assets, in a flexible, liquid, manner,” it read. Federal Reserve data shows that Treasury’s yields for 10-year constant maturity were at 3.64% on March 14.

Market yield on U.S. Treasury securities at 10-year constant maturity: Source FRED

The move is an extension of a current $500 million U.S. Treasury allocation managed by decentralized finance (DeFi) asset adviser Monetalis Clydesdale since October 2022. “As of January 2023, this investment strategy has brought ~$2.1 million in lifetime fees,” MakerDAO claimed

Participants in the governance forum, however, said that “Maker has not yet received any payment from the first half billion DAI” from Monetalis. Delegates also complained that questions in Maker’s Discord and governance forum were not answered promptly, thus not offering enough time to analyze the proposal. 

On March 11, the collapse of Silicon Valley Bank spread panic across markets and led to the depeg of several stablecoins, including USD Coin (USDC) and Dai. In a March 13 Twitter thread about the volatility, MakerDAO noted that its community was working on proposals to switch its stablecoin exposure to money market investments, such as U.S. Treasurys, “with the purpose of diversifying DAI’s liquid collateral.”