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MakerDAO is voting on a proposal that will, for the first time, integrate a traditional bank into its ecosystem, enabling the bank to borrow against its assets via decentralized financing (DeFi).
Currently, 83 percent of voters support the proposition. Voting finishes on July 7 at noon EDT.
As part of the Maker Protocol's new collateral type, the plan calls for creating a vault holding 100 million Dai (DAI) for Huntingdon Valley Bank (HVB).
By completing the bank’s requirements, the Maker Protocol will be able to provide real-world loans to borrowers through a fully-backed conventional institution.
After MakerDAO members voted last week to invest $500 million DAI in treasuries and corporate bonds, the decision to merge the bank comes on the heels of another choice to become more intimately intertwined with traditional banking.
MakerDAO manages the Maker Protocol, which releases DAI stablecoins tied to the United States dollar in exchange for Ether (ETH) and roughly 30 other cryptocurrencies. The Huntingdon Valley Bank is a Pennsylvania-based, conventional bank founded in 1871.
The agreement with HVB is significant for the Maker Protocol because it is not permitted to issue direct U.S. dollar loans to borrowers. Nonetheless, MakerDAO will form a unique organization to enable interaction with regular banks.
First, MakerDAO will form a Multi-Bank Participation Trust (MBPTrust) in Delaware to link the money available at HVB with Maker’s Dai stablecoin.
The trust would oversee the minting and destruction of DAI from the vault and manage business matters with HVB.
HVB would initially control 50 percent of the loans given under this plan but would persuade MakerDAO to lower its stake to a minimum of 5 percent over time. The remaining assets would belong to MBPTrust. This step would reduce the bank’s risk, as it would make loans through the Maker Protocol per Pennsylvania law.
Maker Protocol, which has been searching for solutions to withstand the downturn market, might generate money through vault stability fees linked with managing the vault and minting DAI.
The return, anticipated to be as high as 75 basis points above the 30-day average Secured Overnight Financing Rate (SOFR) of 0.083 percent, would also generate revenue.
HVB gains by expanding its legal loan limit to over $7 million per borrower.
MakerDAO thinks that assuming the HVB integration is successful over some time. The same MBPTrust might be used for other onboard banks.
