Swiss Crypto Bank Sygnum to Lead $500M Maker DAO Cash Diversification

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Sygnum Bank could give MakerDAO’s stablecoin DAI a lifeline as it helps convert its reserves into fiat-denominated financial instruments.

Image source: Sygnum

Sygnum, the world’s first digital asset bank, has been selected by decentralized crypto lender Maker DAO as lead partner in diversifying the company’s half billion cash into traditional assets, according to a statement.

MakerDAO, the company behind the stablecoin DAI, is looking to change the composition of DAI’s reserves. DAI is backed by 18 different cryptocurrencies including ETH, USDC, and USDT to name a few and is the fourth-largest stablecoin by market capitalization ($6.3 billion), according to data from CoinGecko.

“This portfolio diversification tangibly demonstrates the innovation and real benefits that traditional assets bring to the DeFi-enabled financial revolution,” Rajiv Sainani, head of growth at MakerDAO Europe, said in a statement posted on the website. from Sygnum.

Source: CoinGecko

However, under the newly accepted Crypto Asset Markets Acts (MiCAs) passed by the European Council yesterday – or one of the stablecoin bills proposed to Congress in the US – DAI would not comply with any of the regulatory reserve requirements.

Since the collapse of terraUSD, which lost $40 billion and went bankrupt in the space of a fortnight – consequently resulting in $600 billion in losses across the crypto industry – regulators have rushed to place stablecoins under their tenure.

In the EU and US, algorithmic stablecoins like terraUSD should be banned altogether, with stablecoins holding reserves in fiat currency and backed on an individual basis, most likely the only types of stablecoins allowed to operate in both jurisdictions.

Based on reserve requirements alone, stablecoins like Circle’s USDC and Binance’s BUSD could potentially work in the US and EU, but market leader Tether (USDT) and DAI might not. .

Although MakerDAO founder Rune Christensen claimed that “we should seriously consider pulling out of the USD,” recent activity from MakerDAO and DAI suggests that their “crypto only” sentiment is on the wane.

In October 2021, French bank Société Générale offered to borrow DAI in MakerDAO using bonds issued on the Ethereum blockchain as collateral, allowing DAI to diversify its collateral away from crypto.

Sygnum’s involvement with MakerDAO and DAi boils down to the lack of yield-bearing USDC stablecoin issuers present in its $10.5 billion collateral pool.

To boost MakerDAO’s balance sheet, a “new strategy” was needed according to Sygnum’s statement, in which a $500 million diversification into traditional assets was called for.

In a community vote, 72% of those polled elected Sygnum to take on the $500 million diversification task.

The first phase of cash diversification will begin by working with BlackRock Switzerland to allocate and invest $250 million in a portfolio comprised of BlackRock’s iShares ETFs.

iShares is a collection of exchange-traded funds (ETFs), which were acquired from Barclays in 2009.

“The maker’s vote confirmed Sygnum as a ‘crypto-native’ bank… It’s proof that traditional investments in the crypto finance industry can go both ways and that the future has a legacy, in particularly when training next-generation finance,” Martin Burgherr, Sygnum Bank’s director client officer said in a statement.

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