Coinbase Joins Hands with MakerDAO to Custody Its Treasury of USD Coin (USDC)

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by Bhushan Akolkar · 2 min read
Coinbase Joins Hands with MakerDAO to Custody Its Treasury of USD Coin (USDC)
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Coinbase’s institutional-grade service will allow MakerDAO to earn up to 1.5% of the rewards of the funds.

On Monday, October 24, crypto exchange Coinbase announced that the MakerDAO governance has finally voted in favor of the proposal to custody $1.6 billion worth of MarkerDAO’s USD Coin (USDC) treasury.

In return, Coinbase’s institutional-grade service will allow the DAO to earn up to 1.5% of the rewards of the funds. This is for the first time that Coinbase is expanding its USDC rewards program to an institutional client.

On Monday, the proposal was ratified with 75% of the votes in favor or 109,944 MKR tokens. The USD Coin (USDC) also represents one-third of the treasury backing MakerDAO’s Peg Stability Module. This allows users to deposit collateral in exchange for MakerDAO’s native USD-pegged stablecoin DAI.

As per the proposal, Maker won’t be paying any custody fee to Coinbase. Additionally, the community will need to vote on whether they are willing to keep their funds custodied with Coinbase after the set trial period.

Also, being the largest single holder of USDC stablecoin, MakerDAO was a natural partner to launch an institutional rewards pilot program. Jennifer Senhaji, Growth & Business Development, MakerDAO, said:

“This proposed collaboration with Coinbase follows an approved signal of intent by the MakerDAO community to increasingly invest Maker’s collateral into short-term bonds. It was agreed that any collateral deployed should meet the criteria of offering safety, cost structure, and flexibility. Coinbase is uniquely situated to offer a USDC Rewards Program that fulfills these criteria. In addition to Coinbase’s established reputation, it has been a longstanding partner of MakerDAO. The additional monthly revenue generated through this deal enables Maker to further advance its overarching mission to create a global, trustless financial future built on decentralized rails.”

Creating a Legal Entity

MakerDAO said that in order to onboard Coinbase’s institutional rewards program, it will create a legal entity. However, some market analysts have questioned this development. The analysts pointed out that such an arrangement by MakerDAO will erode some of the decentralized features of MakerDAO’s DAI stablecoin since it will now be largely collateralized by centralized stablecoin.

However, this is phase one of Maker’s “Endgame Plan” of increasing collateral in real-world assets and short-term bonds. The long-term goal remains of making DAI a free-floating asset not pegged to the USD. Also, in the next three years, Maker will double down on real-world assets in order to accumulate Ethereum while also increasing the ratio of its decentralized collateral.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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