MakerDAO plans to move 1.1 billion USDC into Coinbase custody

    24 Oct 2022

    MakerDAO, the issuer of DAI stablecoin, is reportedly moving forward with a proposal to onboard an account to Coinbase prime and transfer about $1.1 billion (33% of its USDC) into custody. The platform could earn around 15 million USDC in annual revenue by moving assets to Coinbase, MakerDAO says.

    Porter Smith, an a16z deal partner, announced the VC firm’s support for Coinbase Institutional’s Maker Improvement Proposal (MIP) 81, which would provide institutional rewards for USDC with MakerDAO. a16z cast the majority vote that solidified approval of MIP81.

    The ongoing vote ends Oct. 24, but 88.19% of voting MakerDAO (MKR) tokens are currently in favor of approval.

    According to the proposal, MakerDAO will use the 1.6 billion USDC to participate in Coinbase’s USDC Institutional Rewards program, after which Maker Governance will have access to near-instantaneous (<6 minutes) mint, burn, settlement, and withdrawal functions on Coinbase Prime. Coinbase will calculate rewards on a monthly basis from the weighted average of assets on the platform. Rewards are to be paid out the fifth business day, a month after the calculation and Maker will pay Coinbase zero custody fees.

    “According to the rewards schedule proposed by MIP81, the implementation of this proposal would represent ~15 million USDC in annual revenues for MakerDAO,” MakerDAO wrote on Twitter.

    Per Smith, the implementation with Coinbase will drive a path towards long-term decentralization and resiliency for DAI in a thread on MIP81 on the MakerDAO governance forums. In the final proposal, however, he said that automating liquidity flows between the peg stability module smart (PSM) contract, which manages Governance fees the protocol earns from swaps, and the Coinbase Prime account “could be important from a technical perspective.”

    Moreover, if the funds were instead “deposited into a Coinbase smart contract that didn’t have custodial access to the funds” it “could automatically deposit funds back into the PSM based on programmatic thresholds,” Smith said, adding that such a method would prevent Coinbase’s “custody” from becoming an obstacle to a surge of user redemptions.

    Although, before all that happens the Maker will undergo an onboarding process that includes a legal review with contractual arrangements to ensure Maker Governance has control over liquidity, that no third parties may block the capacity of Maker Governance to execute decisions or modify structures, and that no weak links or edge cases allow for the misappropriation or freezing of funds, according to the proposal.

    Lately, governance activities for MakerDAO spiked as eight of nine recent polls on the platform are marked as High Impact for the protocol, among them MIP81, MakerDAO said on Twitter. Another Coinbase-related proposal seeks to collateralize a 500 million USDC loan to Coinbase with ETH and BTC via the PSM with an interest rate from 4.5% to 6% to be paid monthly.

    Other proposals focused on decentralization via a complex restructuring of MakerDAO, dubbed the “Endgame Plan,” and offboarding core MakerDAO units.

    Also, Maker recently took steps to issue $500 million of its stablecoin reserves into short-term US treasury bonds and investment-grade corporate bonds, aiming to strengthen the project’s balance sheet.

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