Reserves, or the assets held by an entity to fulfill its security and financial practices, are unquestionably the most important part of a Stablecoin’s structure, and in general of a project that needs Liquidity and/or Collateral to financially interact with its users and roadmap.
In the Decentralized Finance world, reserves have become both paramount and a point of political and internal contention; stablecoins need to collateralize their emission through respective asset backed assets. In the case of US Dollar based stablecoins, the projects must guarantee their reserves to be comprised of stable, USD backed or denominated assets, and this means the products being seen as a double-edged sword by the United States financial entities: they could both back U.S. debt through billions and billions of dollars to collateralize their stablecoin emission, and effectively drain liquidity from traditional FIAT currencies.
In this precarious balance between threat and savior, what we see in major players’ reserves can help us understand their behind closed doors standing with entities such as the Securities and Exchange Commission (SEC), during these precarious regulatory times in the Blockchain space.
In June 2023, MakerDAO, the Decentralized Autonomous Organization behind Maker’s dollar based stablecoin DAI, voted on an expansion of it’s real world asset vault of reserves. As per CoinDesk:
”Voters unanimously favored opening a new real-world asset (RWA) vault named BlockTower Andromeda, according to a vote concluded on Thursday. The vault is dedicated to investing a maximum of $1.28 billion in short-dated U.S. Treasury bonds funded by Maker’s overcollateralized DAI stablecoin, according to the proposal.” This is the latest step towards increasing the project’s ties to real world financial assets, which has been pushed in the crypto world after many stablecoin peg scares and doubts, especially in its main players USDT and USDC.
More than 50% of the Maker Protocol’s yield now come from U.S. Treasury bonds, additionally gaining yield from its 500 Million holdings of USDC through CoinBase Prime, and Gemini’s reward payments for Maker holding GUSD. Maker’s Real World Asset Vault is managed by Asset specialist Monetalis, with its CEO Allan Pederson stating:
“Through the diversification of its collateral pool with this U.S. Treasury ladder strategy, Maker is taking advantage of the current yield environment and putting its assets to work.”
Quoting the Maker Protocol Whitepaper:
The Maker Protocol, also known as the Multi-Collateral Dai (MCD) system, allows users to generate Dai by leveraging collateral assets approved by “Maker Governance.” Maker Governance is the community organized and operated process of managing the various aspects of the Maker Protocol. Dai is a decentralized, unbiased, collateral-backed cryptocurrency soft-pegged to the US Dollar. Resistant to hyperinflation due to its low volatility, Dai offers economic freedom and opportunity to anyone, anywhere.
Maker’s main purpose is that of Decentralized Finance providing through its DAI token, while letting its users govern its emission and parameters through the MakerDAO and its token, MAKER (MKR).
WHAT THIS IMPLIES
As can be interpreted through the recent regulatory lens proposed by various governments, the shift of Maker to more U.S. Treasury-based reserves makes it less likely to encounter superficial problems posed by U.S. Financial regulators. However, it also complicates its adoption by BRICS affiliated nations, as the financial direction their taking seems to include less and less purchasing of United States Debt, which stablecoins can directly relieve through this type of reserves structure.
The stability of nation backed yield is also a very important assurance for DAI, and perhaps for MAKR, in terms of having good, compounding liquidity to collateralize the Stablecoin, and help in decentralized liquidity providing.
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