MakerDAO voting on $100M loan participation with Florida commercial bank

Crypto lending platform MakerDAO is voting on a new proposal to bring another commercial bank into its ecosystem, strengthening the connection between decentralized finance (DeFi) and traditional finance. As per MakerDAO’s governance forum, Cogent Bank, a Florida commercial bank, is proposing to participate with $100 million in loans to MakerDAO’s RWA Master Participation Trust. The proposal is part of MakerDAO’s monthly governance cycle, and seeks the same terms and conditions applied to Pennsylvania-based bank Huntingdon Valley Bank (HVB).

Under the same conditions, MakerDAO will use its trust arm to link the capital available at Cogent Bank with the Dai (DAI) stablecoin issued by MakerDAO. The trust entity will be responsible for ensuring DAI minting and destruction from the vault, as well as managing the partnership with the Bank. Cash flow diagrams show the relationship between Maker Vault and Cogent Bank.

The DeFi protocol would gain exposure to the credit market in at least eight categories, including commercial real estate, industrial, life insurance, consumer, and public finance, with loans issued mostly on a fixed-rate basis. MakerDAO will gain revenue from fees associated with maintaining the vault, minting DAI, and yields. The benchmark 30-day average Secured Overnight Financing Rate (SOFR) stood at 4.15% as of Jan. 5.

Cogent Bank was known as Pinnacle Bank before its acquisition in 2018. The Florida bank has $1.3 billion of assets under management, and it is insured by the Federal Deposit Insurance Corporation (FDIC). According to the company, loans originated in the first three quarters of 2022 totaled $602 million, and summed to $873 million in 2021.

In a bid to endure the crypto winter last year, MakerDAO disclosed a governance process for its first collaboration with a traditional bank – Huntingdon Valley Bank. At that time, the DeFi protocol announced plans to onboard other banks depending on the results of its integration with HVB. This new proposal with Cogent Bank is the first step in that direction.

The integration of traditional finance and decentralized finance is a major development in the crypto industry. This new proposal between MakerDAO and Cogent Bank could open the door to more collaborations between traditional banks and DeFi protocols. This could lead to more capital flowing into the DeFi space and potentially drive up prices of DeFi tokens.

At the same time, it could also lead to more regulatory scrutiny of the DeFi space. This could have a negative effect on the industry and lead to more stringent regulations. It is important for DeFi protocols to ensure that they are compliant with all relevant laws and regulations to ensure that they can continue to operate in the future.

Overall, the integration of traditional finance and DeFi could be a major step forward for the industry. It could lead to more capital flowing into the DeFi space and potentially drive up prices. However, it is important to ensure that DeFi protocols remain compliant with all relevant laws and regulations. Only then can the industry continue to grow and thrive.


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