If you love Maker Protocol, this is one more reason to celebrate! MakerDao is taking the financial world to the future with a decentralized banking model allowing traditional banks to borrow against the assets they hold on MakerDao to make loans to individuals.
This week, a proposed integration with a Pennsylvania-based bank could give Maker Protocol yet another edge in the traditional finance space. The integration with a bank in Pennsylvania will be the first of its kind.
For the first time, MakerDAO will allow a traditional bank to borrow against its assets using decentralized finance (DeFi).
There is currently 83% support for the proposal among voters. By July 7, 12 pm ET, voting will be closed.
In the Marker Protocol, a new collateral type called Dai (DAI) is proposed for Huntingdon Valley Bank (HVB).
As a result, Maker Protocol will be able to issue real-world loans to borrowers through a fully backed traditional institution that meets the bank’s requirements.
After MakerDAO members voted last week in favor of investing $500 million in Treasury and corporate bonds, the move to integrate the bank follows a similar move to entwine it with traditional finance.
In exchange for Ether (ETH) and nearly 30 other cryptocurrencies, MakerDAO issues U.S. dollar-pegged DAI stablecoins.
HVB was founded in 1871 as a traditional bank in Pennsylvania.
Due to the fact that the Maker Protocol is not currently allowed to issue U.S. dollar loans directly to borrowers, the deal with HVB is important.
Making integration with the traditional bank possible will be made possible by a special entity created by MakerDAO.
As part of MakerDAO’s plan to link capital available at HVB with the Dai stablecoin, a Multi-Bank Participation Trust (MBPTrust) will be established in Delaware.
Managing commercial issues with HVB as well as minting and destruction of DAI from the vault would be handled by the trust.
Initially, HVB would own 50% of the loans issued under this scheme, but it would petition MakerDAO to gradually reduce its ownership to 5% or less.
The remaining shares would be owned by MBPTrust. This measure would mitigate the bank’s risks since it would essentially be issuing loans under the Maker Protocol.
Through vault stability fees associated with maintaining the vault and minting DAI, Maker Protocol (MAKER), which is trying to weather the bear market, would be able to earn revenue.
A yield of 75 basis points over the 30-day average Secured Overnight Financing Rate (SOFR) of 0.083% is also estimated to generate revenue.
As a result, HVB’s legal lending limit has been effectively increased beyond $7 million per borrower.
In the event the HVB integration is successful after a period of time, MakerDAO believes it can be used to onboard other banks as well.
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Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
