Key Points:

  • From DAI issuer, MakerDAO, Société Générale received a dai stablecoin loan worth $7 million.

  • The debt ceiling for the particular vault is $30 million, so Société Générale may obtain DAI from Maker up to that amount.

  • The company borrowed money from a lending vault on Maker using $40 million worth of home loan bonds as security.

Société Générale – Forge, the French bank’s strong arm in the cryptocurrency sector, used its vault on MakerDAO to borrow $7 million in DAI stablecoin. This is a great first for decentralized finance (DeFi).

The information was confirmed this morning by Sébastien Derivaux, in charge of “Asset-Liability Management” at MakerDAO:

Another milestone in #DeFi@SocieteGenerale Forge casually taking a $7M loan from @MakerDAO while pledging a AAA covered bond as collateral. Actually a cross-currency repo as the collateral is in € and the loan in $ ($DAI). https://t.co/2WPzdI1P6X pic.twitter.com/mPVp9z75vn

— Sébastien Derivaux (@SebVentures) January 12, 2023

It is true that an entity from the traditional banking world that appropriates the innovations of DeFi, two worlds supposed to operate independently, may seem paradoxical. However, Société Générale – Forge has carried out its first DeFi transaction via MakerDAO.

To put it into context, on July 11, the MakerDAO community voted in favor of a historic collaboration with Société Générale – Forge. This involved the creation of an RWA (Real World Assets) vault allowing SG-Forge to borrow up to $30 million in DAI stablecoin.

In return, the guarantee is provided by OHFs, tokenized on the Ethereum (ETH) blockchain. These are covered bonds worth $40 million, backed by real estate loans in France and benefiting from a AAA rating, the maximum rating.

In the world of decentralized finance, a traditional loan is relatively simple to understand. In order to borrow $1,000, you typically need to deposit $2,000 of cryptocurrency as collateral. If this collateral drops in value and goes below $1000, then the protocol liquidates your position.

Precisely, the Société Générale – Forge loan is quite different. The OHF tokens as collateral are backed by real estate, which is not a liquid market. Thus, the liquidation procedure (in the event that the loan is under-collateralized) is not automatic but manual.

As planned since the creation of this vault, a trusted third party will be responsible for verifying daily that the bond meets the guarantee requirements. If this is not the case, then Société Générale – Forge will have five working days to provide additional collateral under penalty of liquidation.

However, this worries some observers who fear that the DAI stablecoin is now backed by real estate. Faced with the current generalized recession, they do not look favorably at a reduction in the boundary between the traditional world and decentralized finance, which increases the risks of a systemic crisis.

Concretely, MakerDAO aims to increase the capitalization of its stablecoin DAI, synonymous with adoption in a context where USDT is losing ground. According to some, the collaboration with SG-Forge is in line with this ambition but represents an excessive risk compared to the rewards.

In reality, the position is monitored daily and the loan made yesterday only represents 0.1% of the capitalization of the DAI. In other words, it is nothing compared to the impact that such a historic collaboration represents on the reputation of Maker DAO and its stablecoin.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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