MakerDAO, the “longest-standing” DeFi lending protocol and creator of DAI, the “original,” decentralized stablecoin, announced that Huntingdon Valley Bank (HVB) has been “approved to utilize a $100M participation facility, funded by a Maker Vault.”
Through this development, HVB, a Pennsylvania Chartered Bank founded in 1871 with more than $550 million in assets, has “become the first US-based bank to integrate collateral into the DeFi ecosystem – opening the largest real-world asset Maker Vault to date.”
Initiating an application in March of this year, HVB’s proposal subsequently “passed multiple governance votes by Maker’s decentralized community as well as a rigorous risk assessment process before HVB was approved to utilize the facility and onboard its collateral to the Maker protocol.”
To bolster the transaction, a legal structure “has been established wherein HVB enters into a Master Purchase Agreement with a Delaware Statutory Trust for the benefit of MakerDAO, called the MakerDAO Bank Participation Trust.”
The trust will “hold and manage the loans from the bank as collateral, enabling HVB to have a stable and consistent partner to sell loan participations.” To mitigate risk, all loans accepted as collateral must “conform to the pre-agreed eligibility criteria, which prescribe minimum internal risk ratings and maximum loan-to-value ratios, among other measures.”
This legal framework “supports the intersection of traditional banking and decentralized finance and serves as an example for how future TradFi-DeFi integrations may proceed.”
MakerDAO’s exposure to each underlying loan “will be less than or equal to HVB’s (50% minimum retention) ensuring an alignment of incentives.”
TJ (Teej) Ragsdale (@Lempheter), Real World Finance, MakerDAO, said:
“Huntingdon Valley Bank should be applauded for unlocking this watershed moment in the co-evolution of decentralized and traditional finance. Its vanguard outlook and quick execution makes it the first US bank to benefit from the very real benefits that DeFi protocols can offer traditional financial institutions.”
TJ added:
“By selling parts of its loans to the Maker protocol, HVB can grow with its customers without selling assets to competitors, enhance its liquidity position, and claim territory on the frontier of finance. For MakerDAO, this is a major step in our real-world asset strategy, diversifying our collateral pools and proving that DeFi can be effectively leveraged to finance great assets in the real world.”