Introducing The Tokenized Asset Portfolio — A Model to Leverage Real World Assets in MCD

MakerDAO has laid the groundwork for collateral-based lending on Ethereum. We believe that a transition to MCD, where multiple asset types other than Ether are accepted as collateral, will fuel the growth of a new and more open financial system built on Ethereum, with MakerDAO acting as a decentralized central bank. For that system to reach its full potential, we believe that real world assets should be introduced as collateral to help scale the demand for Dai while also keeping it stable.

To that end, we have developed a model to allow borrowers to obtain leverage on real world assets from the MCD system. To demonstrate this capability, we have executed an end-to-end pilot transaction in which we borrowed Dai from a CDP on the Kovan testnet using U.S. Treasury securities as the underlying collateral. In doing so, we have illustrated the specific steps involved in leveraging real world assets on-chain, and have demonstrated the tangible value in doing so.

See our recently published White Paper for full details.

We believe this model provides the legal and technical infrastructure necessary to help a decentralized financial (DeFi) system continue to scale. Because it allows traditional capital markets to tap into the MCD system with potentially competitive loan terms, we believe it will incentivize these institutions to pledge stable assets (like U.S. Treasuries) into the basket of assets that backs Dai, creating a virtuous cycle. As more stable assets are pledged to back Dai, the more competitive the loan terms can become. And the more competitive the loan terms become, the more stable assets will continue to flow into the basket to back Dai. As the flywheel begins to spin, the demand for Dai should scale alongside the quality of the collateral backing it, allowing it to eventually become the primary currency of the decentralized financial system.

The smart contracts and oracle scripts can be found on GitHub.

We will soon look to petition the MakerDAO community with a detailed proposal to approve U.S. Treasuries as an initial collateral type. In the meantime, we look forward to hearing community feedback on the TAP construct.

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The TAP was just picked up by Forbes. They explain how it can help Dai grow into a serious competitor to Libra: https://www.forbes.com/sites/jemmagreen/2019/07/25/the-line-has-been-drawn-facebook-libra-has-a-challenger/#264d6e1653db

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I’m confused about the difference between a sponsor, the counter party, and the broker. The Sponsor is presumably the one who wants the CDP, and the broker is the person who facilitates the transactions with the security. Who is the counterparty?

Thanks David. That’s right. The Sponsor is the borrower from the CDP. The counterparty is the borrower from the Sponsor. Their particular identity will vary based on the type of lending transaction being executed. For example, if this was being used for a repo transaction, that counterparty would likely be a repo dealer.

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Hi!!! Are the custodians going to be diversified? There would also be a need to have a very liquid ERC20 market for this instruments in case of liquidation correct? Surely I´m missing something but from the CDP owner´s side, what is the benefit of him opening a CDP using a tokenized treasury security? To solve a short term liquidity problem for example?