Deal Could Generate $70M Annually For Maker
Paxos, a multi-pronged financial infrastructure company which issues crypto’s seventh-largest stablecoin, is looking to make a deal with DeFi’s oldest lending protocol.
Paxos seeks to deposit up to $1.5B of its USDP stablecoin into Maker’s Peg Stability Module (PSM), a component of the protocol which holds reserves backing its DAI stablecoin and allows fee-less swaps to other stablecoins like USDC and GUSD.
Maker TVL, Source: The Defiant Terminal
Paxos benefits from the deal because it’s making money on the traditional financial assets that back USDP, Sam MacPherson, who works on the Protocol Engineering team at Maker, told The Defiant.
With Paxos backing USDP with U.S. Treasuries, whose yields continue to rise, increased demand for its stablecoin would result in a larger pool of collateral from which the company would earn additional revenue.
Paxos already has a $450M allowance for deposits into the PSM, according to the data site Dai Stats.
Paxos has offered to pay Maker 45% of the current Federal Funds Rate, which currently stands at 4.3%, on all USDP deposited in the PSM. MacPherson estimates that the deal could generate roughly $70M annually for Maker.
Other companies have also made plays to integrate with Maker. Coinbase did so in September, and Gemini has also established a $500M debt ceiling for its GUSD stablecoin in the PSM.
Like many others, Paxos highlighted that nearly 30% of DAI is collateralized by USDC, the stablecoin issued by Centre, a consortium co-founded by two major firms, Coinbase and Circle.
This is generally seen as a red flag in terms of censorship resistance — Centre made waves last year when it blacklisted USDC addresses after the US Treasury sanctioned crypto mixer Tornado Cash, essentially freezing the assets.
This, in turn, underscored the way in which USDC lacks censorship resistance — with billions worth of the stablecoin backing DAI, it’s unclear what would happen to DAI if the USDC was frozen in some way.
Looking forward, MacPherson doesn’t see the competition to deposit assets in the PSM ending anytime soon.
Instead, he thinks more companies will offer increasingly competitive rates to Maker in exchange for the privilege — this will eventually lead to TradFi and DeFi rates converging, MacPherson said.
The protocol’s MKR token is up over 24% this year.
MKR Price, Source: The Defiant Terminal