MakerDAO approves $100 million stablecoin loan vault for 151-year-old US bank

Quick Take

  • MakerDAO has passed a vote to create a DAI vault for US-based Huntingdon Valley Bank.
  • At launch the vault will have a debt ceiling of $100 million, which will later be raised to $1 billion.

MakerDAO has approved Huntingdon Valley Bank, a US-based regulated bank founded in 1871, to open a stablecoin vault. This vault will work as a system allowing the bank to borrow DAI tokens after depositing off-chain loans on its balance sheet as collateral.

MakerDAO is the issuer of the Dai (DAI) stablecoin. The DAO vote on Maker Improvement Proposal (MIP) #6 concluded with more than 87% of the total delegated votes supporting the bank's proposal to open a Maker vault.  

At the launch, the bank will be able borrow up to $100 million, with the debt ceiling to grow to $1 billion over the next 12 months. A Delaware-based trust company called MakerDAO Bank Participation Trust will co-manage the bank's loan assets on behalf of MakerDAO. 

Hugh Ragsdale, MakerDAO’s spokesperson for real world assets, said a partnership with a US-based bank will help bridge DAI with traditional finance and therefore strengthen its use. 

"The HVB [Huntingdon Valley Bank] proposal enhances MakerDAO’s balance sheet and reputation. In the financial vein, Maker achieves an out-of-the-box, diversified, and wholesale solution for generating Real World Asset (crypto-uncorrelated) revenues," Ragsdale told The Block.

The official proposal stated that the DAI borrowed from the vault will serve to support the bank's operations. It claimed that it will also generate an estimated 3% yield for MakerDAO.

Governance discussions


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As indicated by the vote, the large majority of the DAO's delegates supported the deal. ACREinvest, a delegate who voted yes during the vote commented that "the innovation [following the deal] here will open the floodgates for others to imagine what's possible outside of TradFi."

However, not all delegates were happy with the idea of a decentralized stablecoin working with traditional finance entities. Chris Blec, the founder of DeFi Watch, was the largest Maker delegate voting against the proposal. He voted no with 4,218 MKR tokens (3.1% of voting power). Blec voiced concerns regarding regulatory risks that come with this deal.

"There is an existential risk that any of these third party deals pose to MakerDAO in the context of today's regulatory climate. What if a regulator forces this bank to freeze everything, sever ties with the DAO and take all the money?" Blec told The Block.

What is DAI?

DAI was originally founded in 2017 as a decentralized stablecoin backed with ether (ETH), the native token of the Ethereum blockchain. In November 2019, MakerDAO migrated to new system, allowing multiple on-chain crypto collaterals to back DAI.

In the last one year, MakerDAO has pivoted to a strategy of diversifying its treasury into real-world assets (RWAs). Just recently, MakerDAO passed a vote to invest $500 million into short-term US treasury bonds and investment-grade corporate bonds.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.


About Author

Vishal Chawla is The Block’s crypto ecosystems editor and has spent over six years covering tech protocols, cybersecurity, artificial intelligence and cloud computing. Vishal likes to delve deep into blockchain intricacies to ensure readers are well-informed about the continuously evolving crypto landscape. He is also a staunch advocate for rigorous security practices in the space. Before joining The Block, Vishal held positions at IDG ComputerWorld, CIO, and Crypto Briefing. He can be reached on Twitter at @vishal4c and via email at [email protected]