MakerDAO Community Rejects CoinShares Proposal to Invest Up to $500M in Bonds

The largest decentralized lending protocol MakerDAO previously approved a plan to invest $1.6 billion with Coinbase Prime for an annual yield of 1.5%, but this latest plan didn't fly.

AccessTimeIconNov 28, 2022 at 4:32 p.m. UTC
Updated Apr 9, 2024 at 11:22 p.m. UTC
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The MakerDAO community rejected a proposal to use up to $500 million of the stablecoin USDC to invest in bonds with crypto investment firm CoinShares.

CoinShares had proposed to manage between 100 million and 500 million USDC and actively invest the money in a portfolio of corporate debt securities and government-backed bonds, aiming to return a yield matching the Secured Overnight Financing Rate (SOFR). SOFR currently stands at 3.8%.

Some 72% of votes were cast against the proposal. The voting concluded Monday.

The rejection came as MakerDAO is in the process of investing billions of dollars from its reserve and optimizing its balance sheet to earn revenue from yields.

MakerDAO is one of the largest decentralized crypto lending protocols and it holds $7.7 billion of assets in its reserve called Peg Stability Module (PSM).

A web of collaborating teams called decentralized autonomous organization (DAO) manages the protocol through public discussions in its forum, and holders of MKR, the protocol’s governance token, vote on proposals.

Starting earlier this year, multiple institutional fund managers such Coinbase and Gemini pitched to MakerDAO their plans to allocate a part of its reserve in yield-generating rewards programs, including investing in treasuries.

The community approved last month a plan to allocate $1.6 billion to Coinbase Prime, the crypto exchange’s custody arm, for a 1.5% annual reward and another $500 million to a consortium of hedge fund Appaloosa and crypto broker Monetalis to provide crypto-backed loans for a 4.5-6% expected annual yield.

Monetalis also won approval to allocate up to $500 million in U.S. Treasury bonds. It has invested some $200 million in Treasurys through exchange-traded funds, according to a dashboard on Dune Analytics.

In September, crypto exchange and custody service Gemini offered MakerDAO a 1.25% annual reward for staking GUSD, Gemini’s stablecoin, on its platform. MakerDAO now holds almost $500 million in GUSD.

BlockTower Capital, a digital asset investment firm, pitched last month to acquire up to 600 million USDC from MakerDAO and invest the funds in structured credit and money market funds. The community is yet to vote on the proposal.

"We have plenty of proposals and only a few billions of capital," Sebastien Derivaux, an asset-liability manager for MakerDAO, told CoinDesk.

CoinShares cited the recent turmoil in crypto markets as the primary reason for the rejection.

"Several delegates have recently told us that they are reluctant to vote for our proposal and the other PSM management proposals in light of market conditions (FTX implosion and Genesis insolvency) as they want to see a cooling down of the industry," according to a statement by CoinShares sent to CoinDesk in an email.

A spokesperson to the firm said that CoinShares intends to improve its pitch and propose it again in the coming months.

UPDATE (Nov. 28, 18:21 UTC): Adds context, proposals previously approved and CoinShares' statement to the story.

UPDATE (Nov. 28, 18:45 UTC): Adds BlockTower Capital's proposal and comment from Sebastien Derivaux.


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Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.

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