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MIP13c3-SP12: Declaration of Intent - Invest in Short-Term Bonds

Preamble

MIP13c3-SP#: 12
Author(s): Sébastien Derivaux (@SebVentures)
Contributors: @JustinCase, @ultraschuppi, @Andy_McCall
Status: Formal Submission
Date Proposed: 2022-02-07
Date Ratified: <yyyy-mm-dd>
Declaration Statement: Invest in short-term bonds
Declaration to Replace: n/a

Specification

Context and Motivation

  • As of writing, around 60% of the MakerDAO balance sheet is in stablecoin. We are often above 50% of stablecoin for the last 18 months. This provides no revenues for MakerDAO, provides bad PR and significant counterparty risk on Circle, and to a lesser extent on Paxos;
  • It becomes clear that investing in DeFi Money Markets is not easy to scale (D3M rarely use more than 50M DAI);
  • Work in this direction was stopped and a potential Core Unit potentially doing this job was never established.

Declaration Detail

  • MakerDAO governance wish for any party to provide a comprehensive solution to this matter;
  • The whole solution should be under full control of MakerDAO governance through executive votes;
  • Counterparties involved in the operations should be established and reputable companies (using metrics such as Asset under Administration and Asset under Management);
  • The solution should provide a legal structure solution and all regulatory clearances backed by appropriate legal opinions from relevant reputable counsel;
  • While there is no jurisdiction predefined, it is assumed that solution proposals will explain and defend their choices;
  • Any investment structure can be proposed, but as guidance, the expected instruments expected are ETFs, mutual funds, a portfolio of ETF/mutual funds and/or a managed account with a narrow mandate;
  • If the investment structure is done in an on-chain tokenized way, the rules above will apply to the underlying structure;
  • The investment should allow for being unwound within a week under normal market circumstances (following a MakerDAO executive vote);
  • The investment should, with a high degree of likelihood, be unwindable under stressed market situations within two weeks---potentially at a loss.
  • Different combinations of duration and assets can be proposed, but should be within the following limits:
    • Average duration up to 2 years;
    • Investment-grade corporate and/or US Treasuries;
    • Maximum 20% of BBB-rated bonds;
    • US Dollars instruments only;
  • The targeted yield to maturity of the portfolio should be 1% (2-year treasuries?) before structural costs and at least 50bps (3-month t-bills?) after all structural costs (including MakerDAO cost for monitoring);.
  • The targeted size is $1B (for cost structure, investment mandate);
  • The $1B allocation will be gradual;
  • The evaluation criteria will be:
    • Safety
    • Cost structure
    • Flexibility
  • Any investment solution selected by Maker Governance will be awarded DAI 1M to finance practical initial implementation (assuming the party is not a MakerDAO CU).

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