MakerDAO Reviews Proposal to Increase US Treasury Bond Investments to $1.25B

MakerDAO, a decentralized finance platform based on the Ethereum blockchain, is currently reviewing a proposal that would see its US treasury bond investment grow from $500 million to $1.25 billion. The investment strategy was initially deployed through short-term US Treasury bond ETFs, and as of January 2023, this strategy had earned $2.1 million in lifetime fees.

The proposal, which is part of MIP65, suggests that the debt ceiling be increased by $750 million, allowing MakerDAO to take advantage of the current yield environment and generate more revenue on the PSM (Peg Stability Module) assets in a flexible and liquid manner that can accommodate changes and upgrades required under the relevant Maker RWA (Real World Asset) related policies.

According to the proposal, the new investment will be deployed under the same terms and transaction mechanisms approved in MIP65, and a structure based on MIP65 will be set up to hold assets under the debt ceiling increase to mitigate any single-entity exposure concerns.

The asset strategy for the new investment involves laddering US Treasuries over a six-month period with bi-weekly maturities. This strategy was selected after reviewing several highly liquid money market options. It presents a strong, flexible, and effective solution for MakerDAO, with low trading costs, tax efficiency, and inherent liquidity as US treasuries mature on the ladder.

The strategy also offers transparency in asset holdings and can be moved to a more complex or different ladder strategy if needed over time as yield curve changes or other considerations dictate such changes.

The strategy execution and adjustment mechanics involve purchasing US Treasuries with maturities equally split over six months so that bi-weekly, a similar amount of US Treasuries matures. As US Treasuries mature every two weeks, the net yield is calculated, and the surplus buffer is transmitted the net amount above the original “slot” investment.

In conclusion, the proposed investment strategy could deliver an increasing amount of cash yield every second week as the ladder matures over the six months. The ladder is expected to deliver a net annualized yield of 4.5% to 4.6% after custody and expected trading costs, which means that the strategy could accrue roughly $1.3 million in yield to Maker every biweek, given continued roll-over.

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