A major French bank wants to invest $40 million in bonds to back the $DAI stablecoin.
Société Générale-Forge (SG-Forge), a subsidiary of French investment banking behemoth Société Générale, has made a historic proposal to MakerDAO, the decentralized autonomous organization behind the $DAI US dollar-pegged stablecoin (SG). The MakerDAO system will be used to onboard tokenized, AAA-rated euro-denominated bonds.
There’s a recurring joke in DeFi circles that “the future of finance” becomes “the future of France” due to an auto-correct error. Now it appears that France’s future may involve some DeFi bucks after all.
In their application to MakerDAO, Société Générale-Forge noted, “This first experiment at the intersections of regulated and open source initiatives…is designed to refinance a Covered Bond Token that was launched last year on the Ethereum public blockchain.”
With 138,000 employees in 62 countries, Société Générale is a European banking behemoth. While this endeavor is being presented as an experiment, it is very much in line with MakerDAO’s goals of diversifying away from dependency on volatile crypto assets (particularly ether) and other centralized stablecoins such as $USDC, which now backs nearly half of the $DAI in circulation:
The OFH Tokens are securities that have been tokenized (available on Bloomberg as SIN FR0013510518). They have a nominal value of €40 million, are secured by home loans granted by a Société Générale-affiliated credit institution, and are issued on Ethereum. The security tokens are based on the open-source framework CAST (Compliant Architecture for Security Tokens), which has already been used on the Ethereum and Tezos blockchains by Banque de France and the European Investment Bank.
SG-Forge wants to borrow up to 20 million $DAI for six to nine months, convert it to US dollars, and loan it to its parent SG in exchange for the use of the $OFH tokens as Pledge – thus refinancing the OFH Tokens.
When dealing with a DAO, there are a few things to keep in mind
The plan demands that the Maker Community vote to select a Maker Representative — DIIS Group — who will be empowered to execute the legal contracts for the transaction because the Maker Community is organized as a DAO.
Because the OFH Tokens have no liquid market, unlike the other assets backing the creation of the $DAI stablecoin, the liquidation method — in the event the loan becomes undercollateralized — is more manual than it is for MakerDAO’s other collateral vaults.
However, SG-Forge emphasizes in its proposal that this is only the first step; European legislation is evolving to accept security tokens, and they anticipate that future expansion in OTC desks and other trading platforms will enable more automated liquidation options.
Participants in the Maker Community forum overwhelmingly supported the proposal, with one calling it “a new landmark in DeFi and showcasing how DeFi and TradFi are converging to create Finance 2.0.”
It’s also worth noting that MakerDAO’s founder, Rune Christensen, was ignorant of the community’s behind-the-scenes efforts to bring this plan to fruition.
By the end of this year, the Maker Foundation is scheduled to be defunct, and the Maker Community will have complete power over the DAO.
Before it can be adopted, the plan will go through a thorough review and discussion process, but there is significant momentum behind the initiative to make this experiment a success.
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