(Kitco News) - The decentralized finance (DeFi) protocol MakerDAO, which is responsible for issuing the DAI stablecoin, has initiated the process of allocating $500 million worth of its stablecoin reserves into short-term US treasury bonds and investment-grade corporate bonds.
The project’s community voted to approve the move, which will start with a $1 million pilot transaction on Wednesday. Once the pilot is deemed successful, the remainder of the investment will be transferred in the coming days.
The DeFi protocol said the shift was being done as a way to diversify its balance sheet by adding exposure to low-risk liquid traditional assets, limiting exposure to any one asset and expanding revenue.
To facilitate the allocation, MakerDAO has selected Sygnum, the world’s first digital asset bank, as its lead partner in the endeavor. During the first phase, Sygnum will work with BlackRock Switzerland to invest $250 million into a portfolio of BlackRock iShares ETFs.
“This portfolio diversification tangibly demonstrates the innovation and real-world benefits traditional assets are bringing to the DeFi-enabled finance revolution,” according to Rajiv Sainani, MakerDAOs Europe growth lead. “This collaboration is another step towards a world where technology is creating new and better financial models.”
Eventually, the DAO intends to invest 80% of its allocation into US Short-Term Treasuries, with 40% of that going into the 0-1y US Treasury ishares ETF while the other 60% will be put into 1-3y US Treasury ishares ETF from BlackRock.
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The other 20% of the total allotment will be put into IG Corporate Bonds, including a “split of US Treasury Index and Active global mandate for 0-5y investment grade corporate bonds from Baillie Gifford,” MakerDAO said.
“The 80-20 split between treasuries and bonds remained the favored approach during the voting process. This showcases the opportunity associated with the move, and seeing such adamant support from the community is very exciting,” said Nadia Alvarez, head of MakerGrowth.
MakerDAO has also partnered with Monetalis, an asset advising firm that will help the protocol form an acceptable legal structure to allow exposure to traditional assets.
DAI was originally founded in 2017 as a decentralized stablecoin backed by Ether (ETH) and other prominent crypto assets. Over the past year, MakerDAO has shifted its strategy to include real-world assets in its treasury as a way to diversify its exposure and risk.
