Decentralized finance projects face a critical question of how to steward resources during the crypto winter to be ready when the market turns around. The answer may lie in an unusual place: U.S. government debt.
Tapping into yields from U.S. Treasurys will be vital for keeping crypto's biggest decentralized autonomous organizations (DAOs) running until the industry rebounds, according to Sébastien Derivaux, co-founder of Steakhouse Financial, a firm created to help DAOs do just that.
In an interview last week at the Real-World Asset Summit in Brooklyn, Derivaux told Axios that tokenized Treasurys are poised to unlock new possibilities in decentralized finance.
"DAO treasuries are key to unlock some new DeFi primitives," he said. "This year I think tokenized T-bills are the clear primitive to unlock."
What Readers Will Learn
- How MakerDAO and other DAOs are using Treasurys
- Derivaux's views on real-world assets in crypto
- Ways tokenized Treasurys can benefit DeFi
- Parallels to past financial innovations
- Answers about risks and opportunities
MakerDAO, creator of the decentralized stablecoin Dai, has already moved $2.2 billion of its $5 billion treasury into U.S. Treasurys. Derivaux previously worked on a core team for MakerDAO and helped establish its early experiments connecting to traditional finance.
Now his firm Steakhouse Financial is assisting major DAOs like MakerDAO, Lido, Venus, and Ethereum Name Service access yield opportunities through tokenized Treasurys.
Stewarding Crypto's Riches Through the Downturn
For decentralized projects that rely on public confidence, surviving the crypto winter will be crucial. MakerDAO and other DAOs hold billions worth of assets from users or revenue.
Expert stewardship of these vast treasuries will determine which projects remain viable on the other side. This is where safe yields from U.S. debt make sense during the lean times.
"Interacting with so-called 'real world assets' was always in the vision for MakerDAO, though it took years of tinkering with legal structures before a DAO without a legal identity could do it," writes reporter Brady Dale.
Then MakerDAO had to wait for Treasurys to offer compelling yields again. Now with its pioneering solution, it is leading the way for other DAOs.
Opinion: Tradition Meets Crypto in a Good Way
Bringing real-world assets on-chain allows crypto to bridge traditional finance safely. This helps decentralized projects mature from speculation toward positively impacting society.
Critics argue relying on old systems contradicts crypto's ethos. But pragmatic hybrid solutions are often how major innovations spread, before purer implementations emerge. For now DAOs can responsibly harness upside of Treasurys.
Bitcoin's Decentralization Can Complement Institutional Yields
MakerDAO showcases Bitcoin's decentralized model working in harmony with centralized assets like Treasurys. This demonstrates crypto's open architecture improving finance.
Bitcoin's censorship-resistance and predictability complements Treasurys' stability and policy responsiveness. Together they provide the best of both worlds.
Prediction: Tokenized Bonds Will Fuel DeFi's Next Chapter
The pivot to Treasurys signals DeFi 2.0, transforming from volatile speculation to mainstream reliability.
Other real-world assets will follow Treasurys on-chain. Asset-backed tokens will become integral to DeFi, not just a novelty.
Parallels to Past Innovations
- Rise of paper money - When paper notes replaced physical gold, some distrusted this new construct. But ease of use eventually made paper money ubiquitous globally.
- Mortgage securitization - Bundling home loans into tradable securities in 1970s expanded housing finance. Yet it took decades to manage risks, leading to 2008 crisis.
- 401(k) retirement accounts - Introduced in 1980s as an obscure novelty, now 401(k)s are the norm for U.S. retirement planning. Their growth was gradual.
Likewise, integrating real assets into DeFi will follow an uneven path. There will be setbacks, but the direction points toward greater interconnection.
Should investors worry about DAOs holding Treasurys?
For investors already trusting DAOs to manage billions in crypto assets, U.S. Treasurys represent a safer store of value than volatile tokens. Proper security and multisig governance will be crucial as always with crypto. So long as protocols take prudent precautions, Treasury yields provide responsible opportunities.
How can DeFi projects benefit most from tokenized bonds?
The best approach is adopting tokenized Treasurys for sizable but not excessive portions of treasuries. This balances upside from yields with moderating risks. Leading projects should collaborate to ensure transparency and reliability. For all the hype in crypto, steady sustainable gains will win long-term. The winners will be platforms providing real utility to users. With care and wisdom, Treasurys can fuel DeFi's next chapter.