In a proposal on Thursday on MakerDAO’s governance forums, French multinational banking giant Société Générale (SocGen) submitted an application for the decentralized finance (DeFi) lending platform to accept on-chain bond tokens issued by the bank as collateral for a stablecoin DAI loan.
The loan, mediated between a number of legal entities and third parties in a somewhat complex legal architecture, would be for up to $20 million in DAI – likely the largest step towards institutional adoption of DeFi to date.
The application was submitted by Société Générale – Forge, a “regulated subsidiary” of the bank with a focus on digital assets. SocGen has been a leader in experimenting with blockchain assets for years, having issued bond-backed tokens on the Ethereum blockchain as far back as 2019.
The tokens that SocGen has submitted for application as collateral were issued in 2020, have a fixed rate of 0%, and mature in 2025. They sport a AAA rating from rating agencies Moody’s and Fitch. Both the bond tokens and DAI are recognized under French law.
SocGen wrote in the proposal that the loan would be a “pilot use case,” and that one of the goals of the project is to “help to shape and promote an experiment under the French legal framework.”
Given both teams’ smart contractual expertise, the real barrier to the application appears to be organizing the legal framework that will avoid the often-messy conflicts that can arise when real-world organizations attempt to interact with on-chain, self-governing systems.
A flowchart included in the proposal shows six entities: SocGen; SocGen Forge; the MakerDAO protocol; the DIIS Group that will serve as a “security agent,” a requirement under French law to enforce the terms of the loan on the real-world side on Maker’s behalf; an as-yet unappointed MakerDAO legal representative; and an as-yet-unnamed third party that will facilitate exchanging the DAI loan to dollars, likely either a custodian service or a centralized exchange.
In an interview with CoinDesk, pseudonymous MakerDAO contributor “PaperImperium” implied that Maker has a number of options when it comes to choosing its legal representation.
“The Maker Representative will probably be one of the legal entities we have been experimenting with. I’m not sure if we have settled on which one, but we have several options of structure and jurisdiction,” he wrote on Twitter.
In April, Maker made headlines by issuing a $38,000 loan to finance a real-world mortgage and has been exploring other real-world options in collaboration with Tinlake and Centrifuge.
“This is the next logical step in MakerDAO’s mission to integrate the crypto and real-world economies. Our first experiments with home loans in April were akin to Sputnik, and the SocGen-Forge proposal is akin to Yuri Gagarin,” PaperImperium said of the application, referring to the Russian astronaut who was the first man in space.
He went on:
PaperImperium said members of the DAO’s Growth core unit initially brought the deal together and that the Real World Finance core unit will “spearhead the preparations and operations of the bond repo.” “Core units” are the decentralized entities with budgets provided by MakerDAO to operate the protocol following the dissolution of the Maker Foundation in July.
PaperImperium, who is the DAO’s most powerful delegate, representing roughly 3% of all token voting power, told CoinDesk that the deal has been in the works since 2020.
SocGen did not respond to a request for comment by press time.
Sébastien Derivaux, the head of MakerDAO’s Real World Finance unit, wrote in a reply to the proposal that it “doesn’t have a good risk/reward,” noting that it would require significant developmental resources to pass.
However, he noted that the ancillary benefits of the proposal – specifically, having the legal architecture in place to accept other real-world bank bonds – more than justifies the necessary time and effort.
“This collateral should be seen as step one of what is next to come. Integrating all publicly traded bonds (that will be on Ethereum as we all know) and providing repo. Quite a huge market,” he wrote.
The proposal is now in a discussion phase, and will move to a formal vote in the coming weeks.
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