Following a favourable governance vote on the MakerDAO protocol (MKR), US bank Huntingdon Valley Bank will have access to a cash reserve of IAD 100 million. This groundbreaking agreement will give MakerDAO equity rights in HVB’s business.
MakerDAO (MKR) to dedicate IAD 100 million cash box to a bank
Huntingdon Valley Bank (HVB), a US bank, can now take on debt on the MakerDAO decentralised finance protocol (DeFi). HVB was effectively awarded a 100 million DAI vault following a governance vote that was finalised this weekend:
The first collateral integration from a US-based bank in the DeFi ecosystem is getting closer.
The Maker Governance votes to add RWA-009, a 100 million DAI debt ceiling participation facility proposed by the Huntingdon Valley Bank, as a new collateral type in the Maker Protocol pic.twitter.com/fOdusdjCFS
– Maker (@MakerDAO) July 4, 2022
Beyond the fact that the situation is unprecedented for the protocol, the functioning of this debt is also a unique case in our ecosystem. And for good reason, it will not be collateralised by cryptocurrencies.
Indeed, the funds released by this debt will allow HVB to develop the growth of the companies it supports and to finance new ones. Being a bank, HVB is, by definition, marketing loans. Thus, it is these loans that will serve as collateral for the loan.
Through a specially created entity, MakerDAO will effectively own rights to the loans granted by the bank. These rights will represent a variable percentage of the debt contracted by HVB. In addition, the bank could increase this source of liquidity to as much as $1 billion.
Furthermore, as MakerDAO points out in a thread detailing the contents of this agreement, it is not really a lender/borrower relationship. Rather, it is a partnership, where the protocol makes liquidity available in exchange for equity in HVB’s business:
The Real World Finance Core Unit has published the Huntingdon Valley Bank (HVB) Collateral Onboarding Risk Assessment.
This is a recap on the collateral onboarding process of HVB, a Pennsylvania Chartered US-based commercial bank.
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– Maker (@MakerDAO) June 16, 2022
At the crossroads of two worlds
For its part, Huntingdon Valley Bank awards loans to actors with a score of up to 6 out of 10. In this case, it should be understood that the closer the score is to 1, the lower the risk is considered to be. Here, the maximum level of 6 out of 10 corresponds to a moderate risk requiring some attention.
This situation reveals a very surprising application of the DeFi. We are witnessing a mixture of the blockchain ecosystem and traditional finance.
The governance proposal was initiated on 25 March by HVB in a discussion on the MakerDAO forum. As far as the vote is concerned, this proposal passed by a large margin with 87.24% of “yes” votes. The ballot had 70 unique participants and almost 135,000 MKR tokens.
Provided the partnership is successful, it will bring legitimacy to the protocol in traditional finance. This could then pave the way for other similar agreements, whether with MakerDAO or other projects.
