Strategy Helped DeFi Lender Weather The Bear Market By Generating Yield On Reserves
Maker will dramatically increase its exposure to U.S. Treasuries, doubling down on a strategy that has paid off handsomely over the past year.
MakerDAO, the decentralized organization that runs the Maker protocol, voted this week to invest up to $750M in U.S. Treasuries. The measure passed with three-quarters of the votes cast in favor.
The yield earned from Treasuries and other real-world assets has cushioned an otherwise dramatic drop in revenue at Maker. But the lending protocol was built, in part, to create a censorship-resistant, dollar-pegged token. The greater its exposure to real-world assets, the further it moves from its original mission.
Maker’s governance token, MKR, is down around 5% over the past week, according to CoinGecko.
Maker is the second-largest protocol in DeFi, with almost $8B in user deposits, according to Defi Llama.
Borrowers can mint its DAI stablecoin by depositing collateral assets like ETH and WBTC in the protocol’s smart contracts. DAI is the fourth-largest stablecoin with a $5.4B market cap, according to CoinGecko.
The move could more than double Maker’s exposure to U.S. Treasuries; in October, the DAO voted to invest up to $500M in U.S. Treasuries and corporate bonds.
The strategy has helped Maker weather the bear market.
According to a report the protocol published last month, Maker’s net income fell sharply last year. Profit in 2021 was $90M; in 2022, it was $19M.
But the report credited the DAO’s investment in real-world assets, a class that includes treasuries, with generating half of the protocol’s earnings despite representing only 10% of its holdings.