Tokenized securities have exploded onto the scene in recent times. Since the launch of the first on-chain USD money market funds in 2021, investors have increasingly accessed US Treasurys via tokenized instruments.
With the emergence of such blockchain-enabled securities, the Decentralized Autonomous Organization (DAO) that governs the DAI stablecoin—MakerDAO—wants to incorporate tokenized Treasury bills (T-bills) into its portfolio.
For years, blockchain advocates have pointed to securities tokenization as one of the technology’s most promising use cases. However, the concept has only really taken off in the past few years.
In 2021, Franklin Templeton introduced the Franklin OnChain U.S. Government Money Fund (FOBXX)—the first US money market fund that records transactions on a public blockchain.
Since then, Matrixdock, Ondo, Wisdom Tree and others have entered the fray. Today, the market for tokenized US Treasurys is worth over $632M .
Since its launch in 2017, MakerDAO’s DAI was collateralized by a mix of different Ethereum-based and real-world assets (RWA).
DAI is issued whenever assets are deposited into Maker Vaults . The collateral locked inside a Vault is then returned whenever DAI is repaid, along with a stability fee that continuously accrues on any outstanding DAI.
From 2021 Maker has diversified DAI’s collateralization strategy to include specific vaults for RWAs. In 2022, the DAO moved to introduce US Treasurys into collateral pools.
In general, RWA investments have been good for Maker, and over half of the DAO’s revenues are now generated from real-world assets.
However, the inclusion of RWAs as collateral for DAI poses a problem for MakerDAO, which, in theory, is fully committed to decentralization.
Investing in T-bills requires working with centralized entities. At present, MakerDao’s Treasurys investments are managed through two off-chain structures, Clydesdale and BlockTower Andromeda. The former is formed via a partnership with Montalis and the latter in collaboration with BlockTower .
Going forward, the Maker community is considering ways to reduce its reliance on such organizations.
In line with its commitment to decentralization and on-chain governance, MakerDAO recently introduced a proposal to explore how it could transition from the current off-chain investment model.
The DAO will now vote on whether to allocate up to $100M to “develop and experiment with tokenized T-Bill products.”
The proposal, put forward by Steakhouse and Pheonix Labs, outlines several benefits of transitioning to on-chain Treasurys.
For starters, the proposal argues that despite Maker’s best efforts, investment vehicles like Clydesdale and BlockTower Andromeda can never live up to the full transparency of tokenized securities.
Moreover, it adds that managing off-chain investments is complex and time-intensive as there are many parties involved in the process. The proposal states that “DAOs are probably not the best structure to manage this complexity.”
Finally, it points out that tokenized funds lend themselves to automation more than their off-chain equivalents.
This last point is critical for Maker, which needs to be able to liquidate assets quickly in order for DAI to keep its peg to the dollar.
To repay Vault depositors, off-chain Treasurys must first be sold for fiat, and then converted into Ethereum-based assets. In contrast, many tokenized money funds can be easily swapped for stablecoins.