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DeFi

The Maker protocol expands its balance sheet with more crypto-uncorrelated assets

MakerDAO (MKR) — the protocol behind decentralized stablecoin DAI — has voted to create a DAI vault for US-based Huntingdon Valley Bank in a move to further diversify project’s balance sheet into real-world assets.

After the vault is launched, the bank will be able to borrow DAI while providing off-chain loans as a collateral to Delaware-based trust company MakerDAO Bank Participation Trust (MBPTrust) that will co-manage the assets on behalf of MakerDAO. The debt ceiling of the new vault will be set to $100 million at the launch and grow to $1 billion over the next 12 months.

Since DAI is a decentralized overcollateralized stablecoin mainly backed by crypto assets, it’s prone to de-pegging during drastic market moves and Ethereum network congestion. For example, the Maker protocol ended up with a $4 million hole in its vaults following the market crash in March 2020 due to major network congestion and over-reliance on correlated crypto assets. As a result, MakerDAO had to bail out the protocol by auctioning its native token MKR in exchange for DAI in order to recapitalize the under-collateralized $4 million debt.

Apart from reducing risks associated with sudden crypto market crashes, the real world assets provided by Huntingdon Valley Bank as a collateral to DAI loans will generate an estimated 3% yield for the MBPTrust, according to the initial proposal.

While the governance proposal was passed with an 87% approval rate, some major delegates like Chris Blec opposed the initiative to further bridge DeFi with traditional finance (TradFi) since that can increase regulatory risks. Chris Blec is a self-proclaimed ‘decentralization maximalist’ and ‘trust minimalist’ who has long been raising awareness about the centralization issues of major DeFi projects and scaling solutions like Uniswap, Sushi, Aave, Polygon, and others.

The Maker Protocol has been managed by decentralized autonomous organization MakerDAO since 2021 after dissolution of the Maker Foundation — a centralized entity that was overseeing the project in its early days.

On that note, according to a recent report by Chainalysis, less than 1% of all governance token holders across several major DAOs have 90% of voting power.

Debt

Celsius frees more capital from DeFi protocols

Celsius — a centralized crypto lending platform with 1.7 million users that halted customer withdrawals due to liquidity troubles — has completely paid back its over-collateralized loan to Maker. The move has freed roughly $450 million in wrapped bitcoin (WBTC), which was previously provided as collateral to the DeFi protocol for the multi-million DAI loan. The troubled company had also repaid its debt to Aave and Compound, withdrawing $172 million and then additional $410 million in various cryptos that have been locked in the DeFi platforms as collateral.

Amid the liquidity crisis, Celsius has been sued by its former investment manager. The lawsuit alleges that the company is a Ponzi scheme that was involved in crypto market manipulation of its native token CEL.

Earlier in June, Celsius hired management consulting firm Alvarez & Marshal to advise on a possible bankruptcy filing, according to the Wall Street Journal. Following the halt of withdrawals and transactions from its platform, Celsius had reportedly laid off 25% of its workforce.

In other news

  • Crypto hedge fund Three Arrows Capital (3AC) has filed for Chapter 15 bankruptcy in New York, which suppose to protect company’s US assets while a liquidation ordered by a court in the British Virgin Islands is carried out, according to a Bloomberg report. The bankruptcy filing states that the physical location of 3AC founders is “currently unknown”.

  • Crypto trading platform Voyager Digital — which previously borrowed 15,000 bitcoin from Alameda Research in order to meet its customer liquidity needs after the 3AC failed to repay a $650 million loan to the company — has suspended customer withdrawals and filed for bankruptcy.

  • A Uniswap liquidity provider fell victim to a phishing attack resulting in a loss of $8 million. The incident got a lot of attention on social media platforms due to suspicions of a potential exploit. The Uniswap team has later confirmed that the protocol hasn’t been breached.

  • GameStop has launched a public beta of its NFT marketplace based on layer-2 (L2) scaling solution Loopring with plans to add support for ImmutableX in the future.

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