The TradFi and DeFi rivalry rhetoric turns amicable as MakerDAO is all set to circumvent the bear market by investing in the combination of US Treasuries and Bonds. The DAO governance has raised a signal request which would allow investing funds of 500 million into government treasuries and bonds in the ratio of 80:20.
80% earmarked for treasuries; whereas, 20% for the bonds. DAI has been sluggish in the bear market and the protocol wants to make the most from the reserves. As a result, the protocol aims at earning yields from traditional investment vehicles through community voting.
What Does MakerDAO Decision Mean For Crypto Space?
Apparently, the Fed will continue raising interest rates throughout this year. Such interest rate hikes will compel corporations to sell risky assets to pay back loans. So, it is very likely that the market will be further seeing a downside and most of the crypto protocols will duplicate the same step of MakerDAO likely. The reason for the same is when the Fed increases interest rates, it becomes tough to do business. The cost of borrowing is at its highest point. Traders and investors would be pulling out the funds and investing in stable portfolios like bonds and debentures. This would be negatively impacting the crypto market.
The Way Forward
However the Fed cannot continue their aggressive stance for a longer time period. The reason being higher interest rates will make doing business non conducive. As a result, employment generation will dip. The Fed will sooner release the employment index and if everything is fine, they will continue raising the interest rates. However, MakerDAO’s 500 million investment shouldn’t be taken as an event signaling liquidation anytime soon. MakerDAO’s Strategic Finance Core Unit Sebastien Derivaux said, “An investment of 500M DAI in this context, that is expected to remain liquid and low volatility, is therefore not a significant risk for the DAI peg nor the solvency of MakerDAO.”