Investment Banking Giant Wants to Take Out MakerDAO Loans

Investment Banking Giant Wants to Take Out MakerDAO Loans

October 1, 2021

Key Takeaways

  • French investment bank Société Générale has proposed using its securities to take out a loans through MakerDAO.
  • The Proposal involves creating OFH tokens representing covered bonds which would be deposited into Maker’s vaults.
  • If accepted, the deal would be the first of its kind between a DeFi protocol and a traditional investment firm.

Société Générale, one of Europe’s biggest investment banks, has propositioned the MakerDAO community to refinance its securities. The bank wants to use covered bonds as collateral to take out Dai stablecoin loans from the protocol.  

DeFi Meets TradFi at MakerDAO

MakerDAO is close to making financial history. 

Societe Generale-Forge (SG-Forge), a subsidiary of French investment bank Société Générale, submitted a proposal to the MakerDAO community Thursday, outlining plans for refinancing covered bonds through MakerDAO’s vaults. If accepted, the deal would be the first of its kind between a DeFi protocol and a traditional investment firm. 

SG-Forge’s proposal involves the creation of “OFH tokens,” securities on the Ethereum blockchain that represent covered bonds backed by home loans. The bonds backing the OFH tokens have been rated aaa by Moody’s and AAA by Fitch, meaning that they have a high level of creditworthiness and a strong capacity to repay investors. 

The OFH tokens will be created under the Compliant Architecture for Security Tokens (CAST), the same framework Société Générale used to launch tokenized debt on the Tezos blockchain earlier this year. 

Once SG-Forge creates the OFH tokens, they would be deposited into MakerDAO’s vaults, allowing the firm to take out an overcollateralized loan of Dai stablecoins with a maturity of six to nine months. 

Like all previous Maker Improvement Proposals (MIPs), MakerDAO token holders will get the final say as to whether or not the DAO will go ahead with SG-Forge’s plan. 

MakerDAO is a decentralized autonomous organization (DAO) that runs the Maker protocol. This DeFi application allows users to lock up their assets in vaults and take out overcollateralized loans paid out in Maker’s in-house stablecoin, Dai. Maker previously only allowed users to take out loans by depositing crypto assets but started allowing users to mint Dai using real world assets in April. 

So far, the Maker community has responded positively to the proposal, with many DAO members excited for a potential partnership between DeFi and traditional finance. On the other hand, critics have pointed out that while the deal is low risk, it does not reward the DAO much. Interest on the bonds is estimated to be less than similar U.S. corporate bonds, which yield 1.93%. 

Over the past year, Société Générale has experimented with various applications of blockchain technologies in finance. The investment bank previously announced plans to create a central bank digital currency (CBDC) using Tezos. Additionally, it has helped settle bonds on Ethereum through the European Investment Bank. 

Disclaimer: At the time of writing this feature, the author owned BTC, ETH, and several other cryptocurrencies. 

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