Paxos Persuades MakerDAO To Hold $1.5 Billion USDP

Key Points:

• Paxos has offered to pay a fee to DeFi giant MakerDAO to hold $1.5 billion in stablecoin USDP as one of its reserve assets.
• The stablecoin issuer has proposed that MakerDAO raise the debt ceiling to $1.5 billion in the form of stablecoin USDP in the Peg Stability Module reserve system for Maker’s stablecoin DAI.
• Paxos will only pay a fee equal to 45% of the Effective Federal Funds Rate if the debt ceiling is at $1.5 billion or more on all days.

Paxos, a stablecoin issuer, proposes paying MakerDAO a recurring charge for storing up to $1.5 billion in Pax USD (USDP) stablecoin reserves.

To encourage the usage of USDP inside the Maker ecosystem and raise the USDP PSM Debt Ceiling to 1.5 billion USDP, Paxos will deliver MakerDAO monthly marketing fees worth 45% of the Effective Federal Funds Rate (EFFR) on the USDP in the PSM.

Only if the debt cap is $1.5 billion or greater on any given day will Paxos agree to pay the charge. According to the proposal, the upper limit would rise to $2 billion in USDP in 2024.

Independent attestations state that USDP is a dollar-pegged stablecoin that is backed 1:1 by U.S. government debt instruments denominated in cash and cash equivalents. The New York Department of Financial Services (NYDFS), the state’s top financial regulatory body, oversees both Paxos and USDP. Paxos would essentially give Maker a portion of the money it made from the government bonds that supported the USDP.

By leveraging the USDP PSM and issuing/redeeming USDP on the Paxos platform, Paxos can support DAI’s peg and take advantage of any arbitrage possibilities because of its solid connections with top market makers.

Paxos calculated that, if utilized to its full potential, the facility would bring in an additional $29 million for Maker per year, based on the 4.3% federal interest rate in effect at the time. The idea will be debated by the MakerDAO community before being put to the vote.

The plan is a component of MakerDAO’s dual endeavor to lessen its dependency on Circle’s USDC stablecoin and increase the protocol’s revenue by investing in government bonds and using other investment tactics to provide a constant dividend on a $7 billion stockpile of digital assets in its reserve. Currently, USDC collateralizes around 30% of DAI and generates about 40% of fresh DAI.

Due to the USDP’s transparency, regulation, liquidity, and scalability, raising the USDP PSM debt ceiling can help DAI lower its exposure to USDC in a secure and useful manner.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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