By Stephan Roth on Thursday 6 October 2022
Sygnum Bank may be giving MakerDAO's DAI stablecoin a lifeline, as it helps convert its reserves into fiat-denominated financial instruments.
Sygnum, the world's first digital asset bank has been selected by decentralised crypto lender Maker DAO as the lead partner in the firm's half a billion treasury diversification into traditional assets, according to a statement.
MakerDAO, the company behind the DAI stablecoin, is looking to change the reserve composition of DAI. DAI is collateralised by 18 different cryptocurrencies, including ETH, USDC and USDT to name but a few and is the fourth largest stablecoin by market capitalisation ($6.3bn), data from CoinGecko suggests.
"This portfolio diversification tangibly demonstrates the innovation and real-world benefits traditional assets are bringing to the DeFi-enabled finance revolution," said Rajiv Sainani, MakerDAO Europe growth lead said in a statement published on Sygnum's website.
However, under the newly accepted markets in crypto assets (MiCA) laws passed by the European Council yesterday -- or any of the stablecoin bills proposed to Congress in the US -- DAI would not meet any of the regulatory reserve requirements.
Since the collapse of terraUSD, which lost $40bn and went bankrupt in the space of a fortnight – consequently causing $600bn in losses across the crypto industry – regulators have rushed to bring stablecoins under their remit.
In both the EU and US, algorithmic stablecoins like terraUSD are expected to be fully banned, with stablecoins holding reserves in fiat currency and backed on a one-to-one basis most probably the only types of stablecoins allowed to operate in both jurisdictions.
Based on reserve requirements only, stablecoins like Circle's USDC and Binance's BUSD could potentially operate in the US and EU, but market leader Tether (USDT) and DAI could not.
Despite MakerDAO's founder Rune Christensen claiming "we should seriously consider depegging from USD", recent activity at MakerDAO and DAI suggests their 'crypto only' sentiment is waning.
rune: we should seriously consider depegging from usd pic.twitter.com/HBMrPH7LrW— banteg (@bantg) August 11, 2022
In October 2021 French Bank Société Générale proposed to borrow DAI in MakerDAO using bonds issued on the Ethereum blockchain as collateral, allowing DAi to diversify its collateral away from crypto.
Sygnum's involvement with MakerDAO and DAi comes down to the stablecoin issuers' lack of yield-bearing USDC present in its $10.5bn collateral pool.
To boost MakerDAO's balance sheet, a "new strategy" was required according to Sygnum's statement, in which a $500m diversification in to traditional assets was requested.
In a community-driven vote, 72 per cent of respondents elected Sygnum to take charge of the $500m diversification task.
The first phase of the treasury diversification will start by working with BlackRock Switzerland to allocate and invest $250m into a portfolio consisting of BlackRock's iShares ETFs.
iShares is a collection of exchange-traded funds (ETFs), which were acquired from Barclays in 2009.
"Maker's vote confirmed Sygnum as a 'crypto-native' bank…It is proof that traditional-crypto finance industry investments can flow both ways and that the future has heritage, especially when shaping next-generation finance," Martin Burgherr, Sygnum Bank's chief client officer said in a statement.
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